<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1998
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 3089 11-3423157
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
320 BROAD HOLLOW ROAD
FARMINGDALE, NEW YORK 11735
(516) 752-1950
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
ANDREW FRANZONE, CHIEF EXECUTIVE OFFICER
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
320 BROAD HOLLOW ROAD
FARMINGDALE, NEW YORK 11735
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
CARL SELDIN KOERNER, ESQ. ROBERT H. COHEN, ESQ.
GUIDO A. PANZERA, ESQ. PHILIP MAGRI, ESQ.
KOERNER SILBERBERG & WEINER, LLP MORRISON COHEN SINGER & WEINSTEIN, LLP
112 MADISON AVENUE 750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10016 NEW YORK, NEW YORK 10022
TELEPHONE: (212) 689-4400 TELEPHONE:(212) 735-8600
FACSIMILE: (212) 689-3077 FACSIMILE:(212) 735-8708
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
AMOUNT TO OFFERING PRICE OFFERING
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE PRICE(3)
<S> <C> <C> <C>
Common Stock, par value $.001 per share............................... 1,437,500(1) 4.50 $6,468,750
Redeemable Common Stock Purchase Warrants, each to purchase one share
of Common Stock....................................................... 1,437,500(2) .10 $143,750
Common Stock, par value $.001 per share, issuable upon exercise of the
Warrants.............................................................. 1,437,500 5.00 $7,187,500
Underwriter's Warrants................................................ 125,000 (4) (4)
Common Stock, par value $.001 per share, issuable upon exercise of the
Underwriter's Warrants................................................ 125,000 5.63 $703,750
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. 125,000 .13 $16,250
Common Stock, par value $.001 per share, issuable upon exercise of the
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. 125,000 5.00 $625,000
Total............................................................. $15,145,000
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, par value $.001 per share............................... $1,909
Redeemable Common Stock Purchase Warrants, each to purchase one share
of Common Stock....................................................... $43
Common Stock, par value $.001 per share, issuable upon exercise of the
Warrants.............................................................. $2,121
Underwriter's Warrants................................................ (4)
Common Stock, par value $.001 per share, issuable upon exercise of the
Underwriter's Warrants................................................ $208
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. $5
Common Stock, par value $.001 per share, issuable upon exercise of the
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. $185
Total............................................................. $4,471
</TABLE>
(1) Includes 187,500 shares of Common Stock which the Underwriter has the option
to purchase solely to cover over-allotments, if any.
(2) Includes 187,500 Warrants which the Underwriter has the option to purchase
solely to cover over-allotments, if any.
(3) Estimated solely for the purpose of calculating the registration fee.
(4) Pursuant to Rule 457(g), no additional registration fee is required on these
securities.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN
ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED MARCH 26, 1998
PROSPECTUS
[LOGO]
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
------------------------
This Prospectus relates to an offering (the 'Offering') by International
Plastic Technologies, Inc., a Delaware corporation (the 'Company'), of 1,250,000
shares of common stock of the Company, par value $.001 per share (the 'Common
Stock'), and 1,250,000 Redeemable Common Stock Purchase Warrants (the
'Warrants') (collectively, the 'Securities'). The shares of Common Stock and the
Warrants will be separately transferable immediately upon issuance. Each Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
a price of $5.00, subject to adjustment under certain circumstances, at any time
commencing 12 months from the date of this Prospectus through and including five
years from the date of this Prospectus. The Warrants are redeemable by the
Company at any time, commencing 12 months from the date of the Prospectus, upon
notice of not less than 30 days, at a price of $.10 per Warrant, provided that
the average closing bid quotation of the Common Stock as reported on the Nasdaq
SmallCap Market ('Nasdaq') or the Boston Stock Exchange ('BSE'), if traded
thereon, or if not traded thereon, the average closing sale price if listed on a
national or regional securities exchange, for any 20 trading days within a
period of 30 consecutive trading days ending on the 15th day prior to the day on
which the Company gives notice equals or exceeds 150% of the then current
Warrant exercise price, subject to the right of the holder to exercise such
Warrants prior to redemption. See 'Description of Securities.'
Prior to the Offering, there has been no public market for the Common Stock
or Warrants and there can be no assurance that any such market will develop, or
if developed, be sustained. It is anticipated that the Common Stock and Warrants
will be quoted on Nasdaq under the symbols 'IPTX' and 'IPTXW,' respectively, and
on the BSE as 'IPT' and 'IPTW,' respectively . The respective offering prices of
the Common Stock and Warrants, and the exercise price of the Warrants, were
determined pursuant to negotiations between the Company and Network 1 Financial
Securities, Inc. (the 'Underwriter') and do not necessarily relate to the
Company's book value or any other established criteria of value. For a
discussion of the factors considered in determining the Offering prices, see
'Underwriting.'
------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS
WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE 'RISK
FACTORS' COMMENCING ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)
<S> <C> <C> <C>
Per Share......................................... $4.50 $.45 $4.05
Per Warrant....................................... $.10 $.01 $.09
Total(3).......................................... $5,750,000 $575,000 $5,175,000
</TABLE>
(1) In addition, the Company has agreed to pay to the Underwriter a 3%
nonaccountable expense allowance and to sell to the Underwriter, for nominal
consideration, warrants to purchase up to 125,000 shares of Common Stock
and/or up to 125,000 Warrants. The Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See 'Underwriting.'
(2) Before deducting expenses, estimated at $1,350,000, payable by the Company,
including the Underwriter's nonaccountable expense allowance.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 187,500 additional
shares of Common Stock and/or 187,500 additional Warrants on the same terms
and conditions as set forth above, solely for the purpose of covering
over-allotments, if any. If such option is exercised in full, the Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $6,612,500, $661,250 and $5,951,250, respectively.
------------------------
The Common Stock and Warrants are being offered, subject to prior sale,
when, as and if delivered and accepted by the Underwriter and subject to the
approval of certain legal matters by counsel and to certain other conditions.
The Underwriter reserves the right to withdraw, cancel or modify the Offering
and to reject any order in whole or in part. It is expected that delivery of
certificates representing the Common Stock and Warrants contained therein, will
be made against payment therefor at the offices of Network 1 Financial
Securities, Inc. on or about , 1998.
NETWORK 1 FINANCIAL SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[INSIDE FRONT COVER]
[ARTWORK TO BE INSERTED]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
(IF ANY) MAY ENGAGE IN PASSIVE MARKET-MAKING TRANSACTIONS IN THE COMMON STOCK
AND WARRANTS ON THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE 'UNDERWRITING.'
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this prospectus (the
'Prospectus'). References to the 'Company' include International Plastic
Technologies, Inc., a Delaware corporation, and its wholly-owned subsidiaries,
Electronic Hardware Corp., a New York corporation ('EHC'), Compact Disc
Packaging Corp., a Delaware corporation ('CDP'), and Duralogic Technologies,
Inc., a New York corporation ('DTI'), unless otherwise indicated. Unless the
context otherwise requires, this Prospectus assumes (i) the reorganization of
the Company effective immediately prior to the date of this Prospectus (the
'Reorganization') described more fully in 'Certain Transactions,' (ii) that the
Underwriter's over-allotment option will not be exercised, (iii) that the
125,000 shares of Common Stock and/or Warrants granted to the Underwriter
('Underwriter's Warrants') will not be exercised and (iv) that the Redeemable
Common Stock Purchase Warrants ('Warrants') will not be exercised, unless
otherwise indicated. This Prospectus contains forward-looking statements
involving risk and uncertainties. The Company's actual results may differ
significantly from the results discussed in such forward-looking statements.
Factors that might cause such differences include, but are not limited to, those
discussed in 'Risk Factors.'
THE COMPANY
The Company, through its principal subsidiary, EHC, has over 28 years of
experience in the design, marketing and manufacture of injection molded plastic
components and assemblies, including consumer, industrial and military knobs and
custom and mechanical assemblies, including Micro Verniers, push or pull-to-turn
clutch knobs and detent knobs. EHC also produces hardware items, including shaft
locks, mounting brackets, test jack covers, cabinet bumpers and captive screws.
The Company believes that EHC's long-term success is due to the average 29-year
experience of its management team, strategic acquisitions of complementary
companies, products and product lines and its ability to adapt new technologies
and advanced manufacturing concepts to produce high-quality products at
competitive prices.
GROWTH STRATEGY
The Company intends to expand its operations through (i) the acquisition
and development of injection molded plastic products and assemblies manufactured
in the United States having niche markets, (ii) the redesigning of such products
and assemblies, if necessary, to improve their function and appearance and (iii)
the manufacturing of such products and assemblies in the People's Republic of
China ('China') at lower prices and improved profit margins. Through a
consultant who will be named as a director of the Company prior to the date of
this Prospectus (the 'Consultant'), the Company has established direct contact
with manufacturers in China and has initiated pilot overseas manufacturing
projects in China of small-scale production runs of the Ultratherm(Registered)
and separate projects through an affiliated company, Allen Field Co., Inc.
('AFC'). See 'Risk Factors--Risks Relating to Manufacturing in China.'
While small businesses comparable in size to the Company often encounter
major difficulties in securing manufacturing projects in China due to
prohibitive broker commissions and agency fees incurred both domestically and
abroad, which, based upon the Company's experience, could account for up to 25%
of the entire manufacturing project, the Company, through the Consultant, has
established direct contact with certain manufacturers in China, allowing the
Company to avoid such commissions and fees and realize the benefit from lower
costs of raw materials and labor. For example, two of EHC's principal raw
materials at this time, AcrylonitirleButadiene Styrene ('ABS') and
polycarbonate, cost up to 50% less in China and the cost of labor for factory
workers in China was approximately $.33 per hour for the year ended December 27,
1997. Based on its assessment of pilot manufacturing projects in China through
AFC, the Company believes that it can reduce its overall domestic manufacturing
costs, including shipping and tariffs, by more than 25%. See 'Risk Factors--
Risks Relating to Manufacturing in China' and 'Certain Transactions.'
3
<PAGE>
PRODUCTS
Control Knobs and Assemblies
The Company, through its wholly-owned subsidiary EHC, manufactures a full
line of instrument control knobs, handles, value-added custom molding, dials and
similar devices for consumer, industrial and military electronics equipment.
EHC's knobs are used for precise setting of switches, on/off switches, volume
controls and critical setting of instrumentation switches. EHC manufactures many
of the knobs based on the customers' exacting specifications as well as its
standard line. Customers of EHC order the knobs by specifying particular
descriptions and features, including the shaft diameter, outer diameter, overall
size, height, color, illumination, dials and markings, such as lines, dots or
numbers.
The Pull Pack(Trademark)
The Company, through its wholly-owned subsidiary, CDP, has entered into a
five-year exclusive international licensing agreement to manufacture, market,
sell and sub-license the Pull Pack(Trademark), a proprietary Disc packaging
system. The Pull Pack(Trademark) is a redesigned 'Jewel Box,' the packaging used
currently for Compact Discs, CD ROMs and Digital Video Discs ('DVD'), and won
the International Design Magazine Award for Packaging in 1993. The Pull
Pack(Trademark) implements a drawer-like mechanism, avoiding the problems
associated with currently available Disc packaging involving fragile hinges,
difficulty in opening and the removal of Discs and descriptive literature. See
'Business--Patents, Trademarks, Licenses and Royalty Rights.'
The Company is negotiating currently with offshore manufacturers in China
to produce the Pull Pack(Trademark) and plans, with no assurance, to market the
product as a specialty packaging system to a targeted niche market, including CD
ROM, special production, retail replacement packaging and rental and
institutional markets such as video stores, lending libraries and technical
research facilities. For the year ended December 28, 1996, the market for Jewel
Boxes sold in the music industry in the United States was approximately
$82,000,000 and the Company believes that the target niche market for the Pull
Pack(Trademark) is approximately $50,000,000. See 'Risk Factors--Developmental
Stage Products.'
The Ultratherm(Registered)
The Company, through its wholly-owned subsidiary, DTI, has entered into an
exclusive international license agreement to manufacture, market and sell the
Ultratherm(Registered), a proprietary portable hand-held massager implementing
alternating hot and cold therapy and massage capabilities for the relief of
discomfort associated with sports and occupational injuries. The
Ultratherm(Registered) weighs 21 ounces, measures eight inches long and
maintains temperatures ranging from 42degreesF to 115degreesF for approximately
one hour on a rechargeable battery contained within its ergometrically-shaped
die-cast aluminum body. Once placed against the body, the contour fitting
thermal dome concentrates and directs the heat or cold and massage vibrations
into the affected areas underlying the soft tissue. See 'Business--Patents,
Trademarks, Licenses and Royalty Rights.'
The Ultratherm(Registered) is being sold currently through specialty
catalogs and stores, including Brookstone. The Ultratherm(Registered) won the
grand prize in Hammacher Schlemmer's annual Search for Invention in March 1992
and was awarded Editors Choice with a four star rating by Golf Magazine in June
1996. The Ultratherm(Registered) has been manufactured historically by the
Company in the United States and retails at approximately $200 per unit. A
manufacturer in China has commenced small-scale manufacturing of the
Ultratherm(Registered) at reduced costs and the Company believes that such
reduced costs will be passed on to consumers. The Company anticipates full-scale
manufacturing of the Ultratherm(Registered) in Summer 1998. See 'Risk
Factors--Developmental Stage Products.'
The Company was formed in 1970 as EHC, a New York corporation, and will be
reorganized immediately prior to the effective date of the Registration
Statement of which this Prospectus is a part (the 'Effective Date') as a
Delaware holding company for its three subsidiaries, EHC, CDP and DTI. The
Company maintains its principal executive offices at 320 Broad Hollow Road,
Farmingdale, New York 11735. The Company's telephone number is (516)752-1950.
See 'Certain Transactions.'
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
SECURITIES OFFERED................... 1,250,000 shares of Common Stock and 1,250,000 Warrants to purchase one
share of Common Stock at an exercise price of $5.00. The shares of Common
Stock and the Warrants will be separately transferable immediately upon
issuance. See 'Risk Factors--Possible Redemption of Warrants and Effect on
Common Stock' and 'Description of Securities.'
COMMON STOCK TO BE OUTSTANDING AFTER
THE OFFERING(1).................... 3,195,000
WARRANTS TO BE OUTSTANDING AFTER THE
OFFERING(2)........................ 1,250,000
TERMS OF THE PUBLIC WARRANTS......... Each Warrant is exercisable at any time commencing 12 months from the date
of this Prospectus and entitles the holder thereof to purchase one share
of Common Stock at an exercise price of $5.00 per share, subject to
adjustment in certain circumstances, at any time until five years after
the date of this Prospectus. The Warrants are redeemable by the Company at
any time commencing 12 months after the date of this Prospectus, at a
price of $.10 per Warrant, upon not less than 30 days prior written notice
to the registered holders of the Warrants, provided that the average
closing bid quotations of the Common Stock as reported on Nasdaq or BSE,
if traded thereon, or if not traded thereon, the average closing sale
price if listed on a national or regional securities exchange equals or
exceeds 150% of the Offering price per share of Common Stock for any 20
trading days within a period of 30 consecutive trading days ending on the
15th day prior to the day on which the Company gives notice of redemption.
See 'Description of Securities--Warrants.'
USE OF PROCEEDS...................... The Company intends to use the net proceeds of the Offering for product
development, working capital and general corporate purposes and potential
acquisitions. See 'Use of Proceeds.'
RISK FACTORS......................... The Securities offered hereby are speculative and involve a high degree of
risk and immediate substantial dilution and should not be purchased by
investors who cannot afford the loss of their entire investment. See 'Risk
Factors' and 'Dilution.'
PROPOSED NASDAQ SMALLCAP MARKET
SYMBOLS(3)......................... Common Stock: IPTX
Warrants: IPTXW
PROPOSED BOSTON STOCK EXCHANGE
SYMBOLS(3)......................... Common Stock: IPT
Warrants: IPTW
</TABLE>
- ------------------
(1) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) 187,500 shares of Common Stock issuable
upon exercise of the Underwriter's over-allotment option; (iii) 187,500
shares of Common Stock issuable upon exercise of the Warrants underlying the
Underwriter's over-allotment option; (iv) 125,000 shares of Common Stock
reserved for issuance upon exercise of the Underwriter's Warrants; and (v)
125,000 shares of Common Stock issuable upon exercise of the Warrants
underlying the Underwriter's Warrants. See 'Description of Securities' and
'Underwriting.'
(2) Does not include (i) 125,000 Warrants issuable upon exercise of the
Underwriter's Warrants and (ii) 187,500 Warrants issuable upon exercise of
the Underwriter's over-allotment option.
(3) The Nasdaq SmallCap Market and Boston Stock Exchange trading symbols do not
imply that a liquid and active market will be developed or sustained for the
Common Stock or Warrants upon completion of the Offering.
5
<PAGE>
SUMMARY OF FINANCIAL INFORMATION
The summary financial information as of December 27, 1997 and for each of
the two years in the period ended December 27, 1997 has been abstracted from the
financial statements of the Company included elsewhere herein (audited, with the
exception of the pro-forma information). See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and 'Consolidated
Financial Statements.'
<TABLE>
<CAPTION>
HISTORICAL PRO-FORMA AS ADJUSTED(1)
---------------------------------- ---------------------------------- --------------
YEAR ENDED YEAR ENDED YEAR ENDED
---------------------------------- ---------------------------------- --------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28, DECEMBER 27,
1997 1996 1997 1996 1997
--------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net Sales......................... $ 6,054,747 $ 5,398,041 $ 6,054,747 $ 5,398,041
Cost of Sales..................... 3,831,599 3,668,420 3,831,599 3,668,420
Net Income........................ 245,255 64,045 155,625 19,543
Pro-forma Net Income (Loss)....... 147,355 38,045 57,625 (6,457)
Pro-forma Net Income Per Share--
Basic........................... 0.08 0.02 0.03 --
Number of shares.................. 1,945,000 1,945,000 1,945,000 1,945,000
BALANCE SHEET DATA:
Current Assets.................... $ 2,172,248 $ 2,172,693 $6,572,693
Total Assets...................... 2,907,820 2,908,265 7,308,625
Current Liabilities............... 1,447,192 1,447,517 1,447,517
Long Term Debt.................... 771,244 903,829 903,829
Stockholders' Equity.............. 450,844 318,379 4,718,379
</TABLE>
- ------------------
(1) Adjusted to reflect the sale of 1,250,000 shares of Common Stock and
1,250,000 Warrants offered hereby and use of proceeds thereof. Assumes no
exercise of (i) 187,500 shares of Common Stock issuable upon exercise of the
Underwriters over-allotment option; (ii) 187,500 shares of Common Stock
issuable upon exercise of the Warrants underlying the Underwriter's
over-allotment option; (iii) 125,000 shares of Common Stock reserved for
issuance upon exercise the Underwriter's Warrants; and (iv) 125,000 shares
of Common Stock issuable upon exercise of the Warrants underlying the
Underwriter's Warrants.
6
<PAGE>
RISK FACTORS
The purchase of the Securities is speculative and involves a high degree of
risk including, but not necessarily limited to, the Risk Factors described
below. The Securities should not be purchased by investors who cannot afford the
loss of their entire investment. Prospective investors should carefully review
and consider the following risks as well as the other information contained in
this Prospectus.
RISKS RELATING TO MANUFACTURING IN CHINA
Dependence on Single Consultant. The Company relies on the Consultant, who
shall be named as a director of the Company prior to the Effective Date, to
serve as its agent in connection with its dealings with manufacturers in China.
There can be no assurance that the Consultant will continue working with the
Company in the Consultant's present capacity. The Company has an agreement with
the Consultant's company, B.C. China Business, Inc., whereby the Consultant is
to provide such consulting services until March 1, 2008. The Consultant will
receive $50 per hour plus 1.5% of the net cost of products manufactured in China
up to $5,000,000 per year and 1% of net costs exceeding $5,000,000, to be
reviewed after the first year of the agreement by the Company's Board of
Directors. The Consultant shall also be entitled to shares of Common Stock and
options to purchase Common Stock. Various factors may sever the non-exclusive
consultancy agreement between the Consultant and the Company, including
termination by either party for cause or otherwise, the death or incapacity of
the Consultant or the overseas manufacturers' unwillingness to work with the
Consultant on current terms, if at all. In addition, there can be no assurance
that the remuneration of the Consultant and related costs will not become
prohibitive in the future. In the event of the termination of the Company's
consulting agreement with the Consultant, there can be no assurance that the
Company will be able to find a comparable consultant, if any, or be able to
establish direct manufacturing relationships in China. Such loss or inability to
find a new consultant would have a material adverse effect on the financial
prospects and international operations of the Company. See 'Certain
Transactions.'
Internal Political and Other Risks. The Company intends to manufacture
certain products in China. As a result, the Company's operations and assets are
subject to significant political, economic, legal and other uncertainties.
Changes in policies by the Chinese government resulting in changes in laws,
regulations, or the interpretation thereof, confiscatory taxation, restrictions
on imports and exports and sources of supply, currency devaluations or the
expropriation of private enterprise could materially adversely affect the
Company. Under its current leadership, the Chinese government has been pursuing
economic reform policies, including the encouragement of private economic
activity and greater economic decentralization. There can be no assurance,
however, that the Chinese government will continue to pursue such policies, that
such policies will be successful if pursued, that such policies will not be
significantly altered from time to time or that business operations in China
would not become subject to the risk of nationalization, which could result in
the total loss of investments. Economic development may be limited as well by
the imposition of austerity measures intended to reduce inflation, the
inadequate development of an infrastructure and the potential unavailability of
adequate power and water supplies, transportation, satisfactory roads,
communications, raw materials and parts. If for any reason the Company is unable
to establish its proposed manufacturing projects in China, the Company's
profitability could be impaired substantially, its competitiveness and market
position could be jeopardized materially and there can be no assurance that the
Company could continue its operations.
Uncertain Legal System and Application of Laws. The legal system of China
relating to foreign outsourcing is both new and continually evolving, and
currently there can be no certainty as to the application of its laws and
regulations in particular instances. China does not have a comprehensive system
of laws. Enforcement of existing laws or agreements may be sporadic and
implementation and interpretation of laws inconsistent. The Chinese judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate laws exist in China, it may not be possible to obtain swift and
equitable enforcement of such laws.
Inflation and China's Rapid Economic Growth. China's economy has been
growing rapidly, creating problems such as inflation. The Chinese government has
imposed measures attempting to check inflation but to date, these methods have
not been effective. There could be an adverse impact on the Company's business
if widespread social or political unrest results from the economic climate.
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Dependence on China Factories. Many of the Company's newly acquired or
developed products will be manufactured at factories located in China.
Firefighting and disaster relief or assistance in some parts of China are
primitive by Western standards. The Company does not maintain insurance for its
products manufactured in Chinese factory buildings. Any material damage to, or
the loss of, any of the Company's manufacturers in China due to fire, severe
weather, flood, or other act of God or cause, could have a material adverse
effect on the Company's financial condition, business and prospects. The Company
does not maintain any business interruption insurance.
Possible Changes and Uncertainties in Economic Policies. As part of its
economic reform, China has designated certain areas, including areas where the
Company intends to maintain certain of its manufacturing relationships, as
Special Economic Zones. Foreign enterprises in these areas benefit from greater
economic autonomy and more favorable tax treatment than enterprises in other
parts of China. Changes in the policies or laws governing Special Economic Zones
could have a material adverse effect on the Company.
Recent Turbulent Relations with the United States; Entry into the World
Trade Organization. The United States has in the past considered revocation of
China's most favored nation ('MFN') trade status, which provides China with the
trading privileges available generally to trading partners of the United States,
and the United States and China have recently been involved in controversy over
the protection of intellectual property rights that threatened a trade war
between the countries. In 1996, President Clinton extended China's MFN status
and the United States and China reached an agreement that averted a trade war.
However, there can be no assurance that future controversies will not arise that
again threaten the status quo involving trade between the United States and
China, or that the United States will not revoke or refuse to extend China's MFN
status. In either of such eventualities, the businesses of the Company could be
adversely affected. In addition, while the United States has announced a change
in policy that may make it easier for China to join the World Trade Organization
(the 'WTO'), the successor to the General Agreement on Tariffs and Trade, if
China does not join the WTO, the Company and its manufacturers located in China
may not benefit from the lower tariffs and other privileges enjoyed by
competitors located in countries which are members of the world trade system
and, as a result, the Company's business could be adversely affected.
International Business Risks. The Company intends to increase revenue
through an international manufacturing strategy. The Company's operations will
be subject to the wide range of general business risks associated with
international operations, including unexpected changes in legal and regulatory
requirements; changes in tariffs, exchange rates and other barriers; political
and economic instability; inability to repatriate net income from foreign
markets; difficulty in protecting the Company's intellectual property; and
potentially adverse tax consequences. Additionally, the Company has had
relatively few pilot overseas manufacturing projects. Such inexperience combined
with various other international manufacturing risks could cause the Company's
attempted international growth strategy to fail, causing a material adverse
affect to the operations of the Company. See 'Business.'
FOREIGN CURRENCY AND FOREIGN EXCHANGE REGULATION
The Company intends to manufacture certain products overseas. The Company
may be required to accomplish such transactions through the use of foreign
currencies, directly or indirectly. As a result, fluctuations in exchange rates
of the U.S. dollar against foreign currencies could adversely affect the
Company's results of operations. There can be no assurance that in the future
the Company will successfully manage its exposure to currency fluctuations or
that such fluctuations will not have a material adverse effect on the Company.
RISKS RELATING TO THE USE OF FOREIGN SUPPLIERS
The Company intends to manufacture certain products overseas. Such overseas
manufacturers will be dependent upon foreign suppliers. Prices for and supply of
those products may be adversely affected by changing economic conditions
internationally. The Company may also be subject to other risks associated with
its international relationships, including tariff regulations and requirements
for export licenses, unexpected changes in regulatory requirements, potentially
adverse tax consequences, economic and political instability, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. In addition, the laws of certain countries may not protect the
Company's products and intellectual property rights to the same
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extent as the laws of the United States. There can be no assurance that such
factors will not have a material adverse effect on the Company's future sales or
licenses and, consequently, on the Company's business, prospects, results of
operations or financial condition as a whole. See 'Business.'
DEPENDENCE ON KEY PERSONNEL
The success of the Company will be largely dependent on the personal
efforts of Andrew Franzone, Chief Executive Officer and President, David L.
Kassel, Chairman, Harry Goodman, Vice President, and other key personnel.
Although the Company has entered into 10-year employment agreements with Messrs.
Franzone, Kassel and Goodman, each dated as of March 15, 1998, such employment
agreements are terminable by the employee at any time, subject only to
noncompetition provisions. All other key personnel are 'at-will' employees. The
employment of each such key employee may be terminated by the individual officer
or the Company at any time, for any reason, if at all. While the Company
maintains 'key man' life insurance in the amount of $200,000 and is applying for
an additional $300,000 on the life of Mr. Franzone, the loss of the services of
Messrs. Franzone, Kassel, Goodman or certain other key employees could have a
material adverse effect on the Company's business and prospects. The success of
the Company is also dependent upon its ability to hire and retain qualified
operational, financial, technical, marketing, sales and other personnel. There
can be no assurance that the Company will be able to hire or retain such
necessary personnel. See 'Risk Factors-- Dependence on Single Consultant,'
'Management--Employment Agreements' and 'Certain Transactions.'
DEPENDENCE ON UNION EMPLOYEES
Of the Company's 105 employees, 45 employees are factory workers and
factory supervisors represented in a collective bargaining agreement by Local
531, International Brotherhood of Teamsters, AFL-CIO. The current collective
bargaining agreement expires on May 9, 1998. While the Company has never
experienced a work stoppage, there can be no assurance that a work stoppage will
not result in the future. The collective bargaining agreement regulates various
employment issues between the Company and the union employees, including pay,
overtime, working conditions, vacations and benefits. No assurance can be given
that the Company will continue to be in compliance with the collective
bargaining agreement or that it will negotiate successfully extensions to the
collective bargaining agreement. In the event conflicts with the union arise or
the Company fails to negotiate an extension to the current collective bargaining
agreement or future extensions, the Company could incur higher ongoing labor
costs and could experience a significant disruption of its operations in the
event of a strike or other work stoppage, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
CONTROL BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
Upon consummation of the Offering, the officers, directors and existing
stockholders of the Company will beneficially own approximately 61% of the
Company's outstanding Common Stock (58% if the Underwriter's over-allotment
option is exercised in full). While no individual will be a beneficial owner of
a majority of the outstanding shares of Common Stock of the Company, such
persons collectively may be able to effectively control the decisions on matters
including election of the Company's directors, increasing the authorized capital
stock, dissolution, merger or sale of the assets of the Company and generally
may be able to direct the affairs of the Company. This concentration of
ownership may also have the effect of delaying, deferring or preventing a change
in control of the Company and making certain transactions more difficult or
impossible absent the support of such stockholders, including proxy contests,
mergers involving the Company, tender offers, open-market purchase programs or
other purchases of Common Stock that could give public, minority stockholders of
the Company the opportunity to realize a premium over the then-prevailing market
price for shares of Common Stock. See 'Principal Stockholders.'
BENEFITS TO OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
The Company intends to distribute an estimated aggregate amount of
$150,000 to its three principal stockholders and executive officers, Andrew
Franzone, David Kassel and Harry Goodman, which may be taken from the proceeds
of the Offering, in the form of cash for federal and state taxes incurred by
such individuals for the year ended December 27, 1997 and the six months ended
June 30, 1998 due to the Company's Subchapter S
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corporation status. Additionally, the Company has various bank credit facilities
which are personally guaranteed by Messrs. Franzone, Kassel and Goodman. The
Company is negotiating with its lender for the agreement to release such
personal guarantees in connection with the Offering and to establish a new
credit facility following the Offering. The estates of Messrs. Franzone, Kassel
and Goodman are also each entitled to redeem 250,000 shares of the Company for
$500,000 and may sell the remaining shares pursuant to Rule 144 under the
Securities Act. Therefore, such officers, directors and principal stockholders
may have various interests differing from those of the investors of the
Offering. See 'Certain Transactions,' 'Dividend Policy' and 'Underwriting.'
RISKS RELATING TO GROWTH THROUGH ACQUISITIONS
A key element of the Company's strategy for the future is expansion through
the acquisition of companies having complementary businesses capable of
utilizing or enhancing the Company's existing capabilities and resources or
expanding the Company's existing product lines. As a result, the Company will
evaluate potential acquisition opportunities, some of which may be material in
size or scope. Acquisitions generally involve a number of special risks,
including (i) the time associated with identifying and evaluating acquisition
candidates, (ii) the diversion of management's attention to the integration of
the operations and personnel of the acquired companies, (iii) the incorporation
of acquired or licensed products or services into the Company's current products
and services, (iv) possible adverse short-term effects on the Company's
operating results, (v) the inability to maintain uniform standards, controls,
procedures and policies, (vi) the impairment of relationships between employees
and customers as a result of change of management, (vii) the realization of
acquired intangible assets and (viii) the loss of key employees of the acquired
companies. Acquired operations typically operate independent marketing, customer
support, billing systems and other functions. Any acquisition by the Company
could result in difficulties in the integration and consolidation of customer
bases or operations. Pending such integration and consolidation, it would be
necessary for the Company to maintain separate billing systems and other
functions of the acquired operation, which could cause inefficiencies and
significant operational complexity and expense and increase the risk of billing
delays and financial reporting difficulties. Additionally, in connection with an
acquisition, the Company could experience rates of customer attrition that would
be significantly higher than the rate of customer attrition that it ordinarily
experiences. There can be no assurance that the Company would be successful in
overcoming these risks or any other problems encountered with any future
acquisitions, investments, strategic alliances or related efforts. The Company
may issue equity securities and other forms of consideration in connection with
future acquisitions, which could cause dilution to investors purchasing Common
Stock of the Company. There can be no assurance that the Company will be able to
identify additional suitable acquisition candidates, that it will be able to
consummate or finance any such acquisitions on favorable terms, if at all, or
that it will be able to integrate any such acquisitions successfully into its
operations. See 'Business' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
DEVELOPMENTAL STAGE PRODUCT
One of the Company's subsidiaries, CDP, intends to market and manufacture a
developmental stage product, the Pull Pack(Trademark). Although the Company has
commenced market-study surveys, the Company has not commenced marketing
activities or generated revenues from the sale of the Pull Pack(Trademark). The
Company's product candidates will require additional development, marketing and
investment prior to commercialization. The Company may also enter into
agreements with investors and entrepreneurs, and may be dependent upon those
individuals and their subsequent success in performing their responsibilities.
In addition, the Company's product is subject to the risks of failure inherent
in the development of products based on innovative technologies. Accordingly,
there can be no assurance that the Company's research and development efforts
will be successful, that the Company's product will be developed successfully,
that the sale of the product will generate revenue or that others will not
develop competitive or superior products. As a result of the early stage of
development of the product, the Company cannot predict with certainty when it
will be able to market the product profitably, if at all. The Company's failure
to develop the Pull Pack(Trademark) and other commercially viable products could
have a material adverse effect on the Company's business, operating results and
financial condition. See 'Business.'
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UNREALIZED PROFITS FROM THE ULTRATHERM(REGISTERED)
One of the Company's subsidiaries, DTI, is in the beginning stages of
manufacturing the Ultratherm(Registered) in China. The Ultratherm(Registered)
will require additional marketing and investment prior to full-scale
manufacturing of the product. The Ultratherm(Registered) is subject to the risk
of failure inherent in products in their initial development phase. Accordingly,
there can be no assurance that the Company's efforts concerning the successful
marketing and manufacturing of the Ultratherm(Registered) will be successful,
that the Ultratherm(Registered) will generate revenue or that other
newly-developed products will not be competitive or superior to the
Ultratherm(Registered). The Company's failure to manufacture and market
successfully the Ultratherm(Registered) could have a material adverse effect on
the Company's business, operating results and financial condition. See
'Business' and 'Risk Factors--Risks Relating to Manufacturing in China.'
RISKS RELATING TO LICENSING AGREEMENTS
The Company, through CDP, entered into an exclusive worldwide license
agreement with Inch, Inc. dated as of March 1, 1998 whereby the Company obtained
the right and license to manufacture, use, sell and sublicense a Disc packaging
system. CDP holds the exclusive license for a minimum of five years and a
maximum of the life of the patent. The Company applied for a new trademark under
the name 'Pull Pack(Trademark)' in March 1998. The agreement generally requires
the Company to pay royalties on sales of products developed from the licensed
technologies and fees on revenues from sublicensees, where applicable. The
agreement also requires that CDP obtain a $1,000,000 capital investment by
February 28, 2000 and provides that Inch, Inc. will act as a consultant to CDP
for the design and manufacture of the Pull Pack(Trademark) at certain hourly
rates based on the number of units sold. Should the Company default on its
obligations to Inch, Inc. under the license agreement, its license could
terminate or become non-exclusive and could have a material adverse effect on
the Company's operations and prospects. See 'Business--Patents, Trademarks,
Licenses and Royalty Rights.'
The Company, through DTI, entered into an exclusive license agreement with
Dr. Richard Deutsch dated as of February 1, 1998 for exclusive worldwide
licensing rights to the Ultratherm,(Registered) a proprietary hot and cold
massager. DTI must make certain payments, including $100,000 immediately after
the Effective Date and various royalty payments each year thereafter. Should DTI
default in its obligations to Dr. Deutsch under the license agreement, its
license could terminate or become non-exclusive and could have a material
adverse effect on the Company's operations and prospects. See
'Business--Patents, Trademarks, Licenses and Royalty Rights.'
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY INFORMATION
The Company's ability to compete effectively may in part depend on its
success in protecting its proprietary technology in the United States and
abroad. The Company holds and has filed certain patent applications with the
United States Patent and Trademark Office (the 'PTO'). There can be no assurance
that the PTO or any foreign jurisdiction will grant the Company's patent
applications or that the Company will obtain any patents or other protection for
which application for patent protection has been made. No assurance can be given
that patents issued to or licensed by the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
any competitive advantage or that the Company will have the resources to pursue
any litigation against any party the Company believes to be an infringer. The
Company will also rely on trade secrets, know-how and continuing technological
advancement in seeking to achieve a competitive position. No assurance can be
given that the Company will be able to protect its rights to its unpatented
trade secrets or that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets. See 'Business--Patents, Trademarks, Licenses and
Royalty Rights.'
In addition to protecting its proprietary technology and trade secrets, the
Company may be required to obtain additional licenses to patents or other
proprietary rights from third parties. No assurance can be given that any
additional licenses required under any patents or proprietary rights would be
made available on acceptable terms, if at all. If the Company does not obtain
required licenses, it could encounter delays in product development
while it attempts to design around blocking patents, or it could find that the
development, manufacture or sale of products requiring such licenses could be
foreclosed.
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The Company could also incur substantial costs in defending any patent
infringement suits or in asserting any patent rights, including those granted by
third parties. The PTO could institute interference proceedings against the
Company in connection with one or more of the Company's patents or patent
applications, and such proceedings could result in an adverse decision as to
priority of invention. The PTO or others could also institute reexamination
proceedings with the PTO against the Company in connection with one or more of
the Company's patents or patent applications and such proceedings could result
in an adverse decision as to the validity or scope of any patents that the
Company may obtain or have the right to use.
RISKS RELATING TO PROPOSED EXPANSION
The Company intends to use the proceeds of the Offering to seek to expand
its current level of operations through acquisitions of companies, products and
product lines and international manufacturing. Successful expansion of the
Company's operations will be dependent, among other things, on the Company's
ability to achieve significant market acceptance for its new products, enter
into satisfactory marketing arrangements, secure adequate sources of supply on a
timely basis and on commercially reasonable terms, if at all, and successfully
manage growth, including monitoring operations, controlling costs and
maintaining effective quality controls. Failure of the Company to expand
successfully could have a material adverse effect on its business. See
'Business.'
DEPENDENCE UPON SUPPLIERS AND RAW MATERIALS
The Company does not have written agreements with suppliers of its raw
materials. There can be no guarantee that the Company would be able to locate
other satisfactory suppliers, or even if other suppliers could be located, that
the Company would be able to establish commercial relationships with any such
suppliers on favorable terms, if at all. If the Company is unable to establish
commercial relationships with other suppliers, it may be required to suspend or
curtail some of its current services and product lines. In addition, the
Company's principal raw materials are currently readily available, but there can
be no guarantee that a general shortage of such raw materials will not occur.
Such a shortage could also suspend or curtail some of the Company's services. In
the event the Company cannot secure such raw materials or any other raw
materials on reasonable commercial terms, it may have to go to other sources and
may not be able to secure similar quality or prices. Any suspension or
curtailment of raw materials could have a material adverse effect on the
Company. See 'Business.'
GOVERNMENT REGULATION OF TECHNOLOGY
Expansion into foreign markets may require the Company to comply with
certain regulatory requirements of the U.S. or foreign governments. The
technology contained in the Company's products may be subject to U.S. export
controls. There can be no assurance that such export controls, either in their
current form or as may be subsequently enacted, will not delay introduction of
new products or limit the Company's ability to distribute products outside of
the U.S. Further, various countries may regulate the import of certain
technologies contained in the Company's products. Any such export or import
restrictions, future legislation or regulation or government enforcement could
have a material adverse effect on the Company's business, operating results and
financial condition. In addition, the Company must qualify certain of its
products on government-regulated Qualified Product Lists in order to sell such
products to the U.S. Military. Failure to qualify products on such lists would
have adverse effects on the Company's ability to sell products to the U.S.
Military. Any such export or import restrictions, new legislation or regulation
or government enforcement of existing regulations could have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that the Company will be able to comply with
additional applicable laws and regulations without excessive cost or business
interruption, if at all, and failure to comply could have a material adverse
effect on the Company. See 'Business--Government Approval.'
LEGAL RESTRICTIONS ON SALES OF SHARES UNDERLYING THE WARRANTS
The Warrants are not exercisable unless, at the time of the exercise, the
Company has an effective Registration Statement covering the shares of Common
Stock issuable upon exercise of the Warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the exercising holder of the Warrants. Although the
Company has agreed to maintain the effectiveness of the
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Registration Statement of which this Prospectus is a part, covering the shares
of Common Stock issuable upon the exercise of the Warrants effective for the
term of the Warrants, the Company's failure to do so would deprive the Warrants
of any value. See 'Description of Securities--Warrants.'
The Common Stock and Warrants are separately transferable immediately upon
issuance. Purchasers may buy Warrants in the aftermarket in, or may move to,
jurisdictions in which the shares underlying the Warrants are not so registered
or qualified during the period that the Warrants are exercisable. In this event,
the Company would be unable to issue shares to those persons desiring to
exercise their Warrants, and holders of Warrants would have no choice but to
attempt to sell the Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised. See 'Description of Securities--Warrants.'
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ OR BSE
Following the Offering, the Securities will be listed on Nasdaq and BSE, if
approved. There can be no assurance, however, that the Company will satisfy the
criteria for continued listing. In order to remain quoted on Nasdaq, under
recently amended maintenance criteria, a company must have net tangible assets
(total assets, excluding goodwill, minus total liabilities) of $2 million (or
alternatively, net income of $500,000 in two of the three most recent fiscal
years, or a market capitalization of $35 million). In addition, continued
inclusion requires that the listed security have a minimum bid price of $1.00
per share, public float (shares not held directly or indirectly by any officer
or director or any person who is the beneficial owner of more than 10% of the
total outstanding shares) of at least 500,000 shares and the market value of
such shares be at least $4,000,000. There must also be 300 registered holders of
the Common Stock.
The Securities will also be listed on the BSE following the Offering, if
approved. There can be no assurance that the Company will satisfy the criteria
for continued listing. In order to remain quoted on BSE, a company must have
total assets of $1,000,000, public float of 150,000 shares with a market value
of $500,000, 250 beneficial holders and Stockholders' Equity of $500,000.
If the Company is unable to satisfy Nasdaq's or BSE's listing standards,
its securities may be delisted from Nasdaq or BSE. In such event, trading, if
any, in the Securities would thereafter be conducted in the over-the-counter
market on the so-called 'pink sheets' or the NASD's 'Electronic Bulletin Board.'
As a consequence of such delisting, an investor could find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Securities.
Consequently, the liquidity of the Securities could be impaired, not only in the
number of securities which could be bought and sold, but also through delays in
the timing of transactions, reduction in security analyst and news media
coverage of the Company and lower prices for the Securities than might otherwise
be attained.
'PENNY STOCK' RESTRICTIONS
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a 'penny stock.' Regulations of the Securities
and Exchange Commission (the 'Commission') define a 'penny stock' to be any
non-Nasdaq equity security that has a market price (as therein defined) of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the penny
stock market. Disclosure is also required to be made about commissions payable
to both the broker-dealer and the registered underwriter and current quotations
for the securities. Finally, monthly statements are required to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Securities if such Securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis or meet certain
minimum net tangible assets or average revenue criteria. However, there can be
no assurance that the Securities will qualify for exemption from these
restrictions. In any event, even if the Securities are exempt from such
restrictions, the Company would remain subject to Section 15(b)(6) of the
Securities Exchange Act of 1934 , as amended (the 'Exchange Act'), which gives
the Commission the authority to prohibit any person that is engaged in unlawful
conduct while participating in a distribution of a penny stock from associating
with a broker-
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dealer or participating in a distribution of a penny stock, if the Commission
finds that such a restriction would be in the public interest. If the Securities
were subject to the rules on penny stocks, the market liquidity for the
Securities could be severely adversely affected. See 'Risk Factors--Possible
Delisting of Securities from Nasdaq or BSE.'
RISKS OF LOW-PRICED STOCK
If the Securities are delisted from Nasdaq or BSE, they will become subject
to Rule 15g-9 under the Exchange Act, which imposes additional sales practice
requirements on broker-dealers selling such securities to persons other than
established customers and 'accredited investors' (generally, individuals with
net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or
$300,000 together with their spouses, for the last two years). For transactions
covered by this rule, a broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. Consequently, such rule may adversely
affect the ability of broker-dealers to sell the Securities and may adversely
affect the ability of purchasers in the Offering to sell in the secondary market
any of the Securities acquired hereby. See 'Risk Factors--Possible Delisting of
Securities from Nasdaq or BSE.'
NO PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Securities.
Accordingly, there can be no assurance that an active trading market will
develop or, if developed, be sustained subsequent to the Offering.
ARBITRARY DETERMINATION OF OFFERING PRICE
The Offering price of the Securities and the exercise price and terms of
the Warrants have been determined arbitrarily by negotiations between the
Company and the Underwriter. Factors considered in such negotiations, in
addition to prevailing market conditions, included the history and prospects for
the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and certain
other factors deemed relevant. Therefore, the Offering price of the Common Stock
and the exercise price and terms of the Warrants do not necessarily bear any
relationship to established valuation criteria and may not be indicative of
prices that may prevail at any time or from time to time in the public market
for the Common Stock. See 'Underwriting.'
POSSIBLE REDEMPTION OF WARRANTS AND EFFECT ON COMMON STOCK
The Warrants are redeemable by the Company at any time commencing 12 months
from the date of this Prospectus, for $.10 per Warrant upon 30 days prior
written notice, provided that the average closing price or bid price of the
Common Stock as reported on Nasdaq or BSE, if traded thereon, or if not traded
thereon, the average closing sale price if listed on a national or regional
securities exchange has been in excess of 150% of the then current Warrant
exercise price for any 20 trading days within the 30 consecutive trading days
ending on the 15th day prior to notice of redemption. Redemption of the Warrants
by the Company could force the holders to (i) exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for the holders to do
so, (ii) sell the Warrants at the then current market price when they might
otherwise wish to hold the Warrants or (iii) accept the redemption price, which
is likely to be substantially less than the market value of the Warrants at the
time of redemption. In the event of the exercise of a substantial number of
Warrants within a reasonably short period of time after the right to exercise
commences, the resulting increase in the amount of Common Stock of the Company
in the trading market could substantially affect the market price of the Common
Stock. See 'Description of Securities--Warrants.'
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market generally has experienced and is likely in the future to
experience significant price and volume fluctuations which could adversely
affect the market price of the Common Stock without regard to the significant
fluctuations in response to variations in quarterly operating results,
shortfalls in sales or earnings below analyst estimates, stock market conditions
and other factors. There can be no assurance that the market price of the
Securities will not experience significant fluctuations or decline below the
Offering price.
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LACK OF DIVIDENDS
The Company has not paid any dividends, except distributions by EHC as a
Subchapter S corporation, and does not contemplate paying dividends in the
foreseeable future. It is currently anticipated that earnings, if any, will be
retained by the Company to finance the development and expansion of the
Company's business. See 'Dividend Policy.'
ANTITAKEOVER EFFECT OF CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation authorizes the Board of
Directors to determine the rights, preferences, privileges and restrictions of
unissued series of preferred stock, $.001 par value per share (the 'Preferred
Stock'), and to fix the number of shares of any series of Preferred Stock and
the designation of any such series, without any vote or action by the Company's
stockholders. Thus, the Board of Directors can authorize and issue up to
1,000,000 shares of Preferred Stock with voting or conversion rights that could
adversely affect the voting or other rights of holders of the Company's Common
Stock. In addition, the issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change of control of the Company, since the
terms of the Preferred Stock that might be issued could potentially prohibit the
Company's consummation of any merger, reorganization, sale of substantially all
of its assets, liquidation or other extraordinary corporate transaction without
the approval of the holders of the outstanding shares of the Common Stock. The
Company, however, has no intention of adopting a stockholder rights plan
('poison pill') in the foreseeable future. See 'Description of
Securities--Preferred Stock.'
IMMEDIATE AND SUBSTANTIAL DILUTION
The Offering will result in an immediate and substantial dilution of $3.02
(67.1%) per share between the Offering price and the pro forma net tangible book
value per share of Common Stock. See 'Dilution.'
UNDERWRITER'S INFLUENCE ON THE COMPANY
Upon consummation of the Offering, the Underwriter has been granted, for a
period of five years, the right to designate one individual to serve on the
Board of Directors of the Company. If the Underwriter were to exercise such
right, it could be deemed under certain circumstances to be in a position to
assert influence over the Company. See 'Underwriting.'
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon the consummation of the Offering, the Company will have 3,195,000
shares of Common Stock outstanding (3,382,500 shares if the Underwriter's
over-allotment option is exercised in full and assuming no exercise of Warrants
or the Underwriter's Warrants). Of these shares, the 1,250,000 shares sold in
the Offering (1,437,500 shares if the Underwriter's over-allotment option is
exercised in full) will be freely tradeable. The remaining 1,945,000 shares are
deemed to be 'restricted securities,' as that term is defined under Rule 144
('Rule 144') promulgated under the Securities Act of 1933, as amended (the
'Securities Act'), in that such shares were issued and sold by the Company in
private transactions not involving a public offering and are not covered
currently by an effective registration. Except for an aggregate of 1,945,000
shares of Common Stock beneficially owned by the officers, directors and
principal stockholders of the Company subject to 'lock-up' agreements between
such persons and the Underwriter, whereby such persons agree not to directly or
indirectly, sell, offer, pledge, contract to sell, hypothecate, grant any option
to purchase or otherwise dispose for a period of two years, subject to certain
exceptions, such shares are subject to the resale restrictions of Rule 144 and
will become so eligible at various times. In addition, the Company has granted
the Underwriter demand and piggyback registration rights with respect to the
securities issuable upon exercise of the Underwriter's Warrants. See 'Shares
Eligible for Future Sale.'
Under Rule 144, a stockholder who has beneficially owned restricted shares
for at least one year (including persons who may be deemed to be 'affiliates' of
the Company under Rule 144) may sell within any three month period a number of
shares that does not exceed the greater of: (i) 1% of the then outstanding
shares of a particular class of the Company's Common Stock as reported on its
10-Q filing, or (ii) the average weekly volume on Nasdaq during the four
calendar weeks preceding such sale and may only sell such shares through
unsolicited
15
<PAGE>
brokers' transactions. A stockholder who is not deemed to have been
an 'affiliate' of the Company for at least 90 days and who has beneficially
owned his shares for at least two years would be entitled to sell such shares
under Rule 144 without regard to the volume limitations described above.
Prior to the Offering, there has been no public market for the Company's
Securities. Sales of substantial amounts of shares of the Company's Common
Stock, pursuant to Rule 144 or otherwise, could have a depressive effect on the
market price of the Securities, and consequently make it more difficult for the
Company to raise capital through the sale of equity securities in the future at
a time and price which the Company deems appropriate. See 'Shares Eligible for
Future Sale.'
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the General Corporation Law of the State of Delaware
contains provisions entitling directors and officers of the Company to
indemnification from judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees, as the result of an action or proceeding in
which they may be involved by reason of being or having been a director or
officer of the Company provided said officers or directors acted in good faith.
The Company's Certificate of Incorporation contains provisions indemnifying
officers and directors of the Company to the fullest extent permitted by
Delaware law. These provisions provide, among other things, that a director of
the Company shall not be liable either to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. These provisions
may limit the ability of the Company's stockholders to collect any monetary
liability damages owed to them by an officer or director of the Company.
RELATIONSHIP OF UNDERWRITER TO TRADING
The Underwriter may act as a broker or dealer with respect to the purchase
or sale of the Securities in the over-the-counter market where each is expected
to trade. The Underwriter may engage in transactions that stabilize, maintain or
otherwise affect the market price of the Securities in accordance with Rule 103
of Regulation M, pursuant to which such persons may bid for or purchase
securities for the purpose of stabilizing their market prices. The Underwriter
also has the right to act as the Company's exclusive agent in connection with
any future solicitation of Warrant holders to exercise their Warrants. Unless
granted an exemption by the Commission from Rule 10b-6 under the Exchange Act,
the Underwriter will be prohibited from engaging in any market-making activities
or solicited brokerage activities with regard to the Company's Securities during
a period beginning five business days prior to the commencement of any such
solicitation and ending on the later of the termination of such solicitation
activity of the termination (by waiver or otherwise) of any right the
Underwriter may have to receive a fee for the exercise of the Warrants following
such solicitation. As a result, the Underwriter and soliciting broker/dealers
may be unable to continue to make a market in the Company's securities during
certain periods while the exercise of the Warrants is being solicited. Such a
limitation could impair the liquidity and market price of the Securities.
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<PAGE>
USE OF PROCEEDS
Assuming the sale of the Securities offered hereby, the net proceeds to the
Company, after deducting estimated underwriting discounts and commissions and
expenses payable by the Company in connection with the Offering, are estimated
to be approximately $4,400,000 (approximately $5,200,000 if the Underwriter's
over-allotment option is exercised in full). The Company expects to use such
proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE % OF
APPLICATION OF NET PROCEEDS DOLLAR AMOUNT PROCEEDS
- -------------------------------------------------------------------- ------------- --------
<S> <C> <C>
Product Development................................................. $ 880,000 20%
Working Capital and General Corporate Purposes...................... $ 1,760,000(1) 40%
Potential Acquisitions.............................................. $ 1,760,000 40%
------------- ---
Total.......................................................... $ 4,400,000 100%
------------- ---
------------- ---
</TABLE>
- ------------------
(1) Of which the Company may distribute $150,000 to its three principal
stockholders and executive officers, Andrew Franzone, David Kassel and Harry
Goodman, for federal and state taxes incurred by such individuals for the
year ended December 27, 1997 and the six months ended June 30, 1998 due to
the Company's Subchapter S corporation status.
In the event that the Company's plans change or its assumptions change or
prove to be inaccurate or if the proceeds of the Offering prove insufficient to
fund operations (due to unanticipated expenses or difficulties or otherwise),
the Company may find it necessary or advisable to reallocate some of the
proceeds within the above-described categories or to use portions thereof for
other purposes or may be required to seek additional financing or curtail its
operations. Future events, including changes in economic or industry conditions
or the Company's planned operations, may require the Company to reallocate
proceeds among the various intended uses if it is determined at a later date
that an increase in any expenditures or reallocation of proceeds is necessary or
desirable. Any such determination would be based on, among other things, whether
and to what extent revenue from sales is sufficient to offset operating expenses
and the capital requirements associated with expanding its operations.
The Company may, if and when the opportunity arises, use a portion of the
proceeds of the Offering allocated to working capital, together with the
issuance of debt or equity securities, to acquire rights to products or to
acquire existing companies in businesses the Company believes are compatible
with its business. Any decision to make such an acquisition will be based upon a
variety of factors, including, among others, the purchase price and other
financial terms of the transaction, the business prospects and competitive
position of, and technology or products provided by, the acquisition candidate
and the extent to which any technology or business would enhance the Company's
prospects. Potential acquisition candidates may include companies with products
that are compatible with the Company's products, or that the Company believes
would provide the Company with additional distribution channels. As of the date
of this Prospectus, the Company has no agreements, understandings or
arrangements with respect to any such acquisition. There can be no assurance
that the Company will be able to successfully consummate any acquisition or
successfully integrate any acquired business into its operations. Investors in
the Offering will not have an opportunity to evaluate the specific merits or
risks of any acquisition.
Proceeds not immediately required for the purposes set forth above will be
invested in short-term, investment-grade, interest-bearing securities.
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<PAGE>
DIVIDEND POLICY
The Company intends for the foreseeable future to retain future earnings,
if any, to provide funds for the development and expansion of the Company's
operations. Except as discussed below, any payment of dividends after the
completion of the Offering, as determined at the discretion of the Board of
Directors, will be dependent upon the financial condition, capital requirements
and earnings of the Company, and other factors the Board of Directors may deem
relevant.
From its inception until immediately prior to the date of this Prospectus,
EHC has been treated as a closely-held corporation under Subchapter S of the
Internal Revenue Code of 1986, as amended (the 'Code') and, therefore, did not
pay federal or state income taxes on amounts earned during such periods. In 1996
and 1997, EHC distributed dividends to its stockholders for the years ended
December 30, 1995 and December 28, 1996 in the aggregate amounts of $207,243 and
$133,379, respectively. The Company estimates that there will be a distribution
to stockholders of an aggregate of approximately $75,000 for the balance of
taxes owed for the year ended December 27, 1997. EHC has agreed to distribute,
through a dividend to its existing stockholders upon the Effective Date of the
Offering, a minimum of 38% of the earnings of EHC from December 28, 1997 until
the Effective Date, which amount approximates the amount such stockholders would
be expected to pay personally for income taxes based on such earnings. Although
it is impossible to determine the exact amounts of the distributions at this
time, based on the Company's projections of the financial results for the six
months ended June 1998, the Company estimates that as of June 30, 1998, it will
distribute an aggregate of approximately $75,000 to such stockholders in
proportion to their respective holdings. To the extent EHC has additional income
for June 30, 1998 through the date of this Prospectus, the amount of such
distribution will increase. The extent of such additional liabilities, if any,
cannot be ascertained at this time.
18
<PAGE>
DILUTION
At December 27, 1997, the pro forma net tangible book value of the Company
after giving effect to the acquisition of CDP was $318,379, or $0.16 per share
of Common Stock, based on 1,945,000 shares of Common Stock outstanding. The net
tangible book value per share represents the amount of the Company's total
assets less total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the receipt of the net proceeds (estimated
to be approximately $4,400,000) from the sale of 1,250,000 shares of Common
Stock offered hereby at an assumed Offering price of $4.50 per share and
1,250,000 Warrants at $.10 per Warrant, the pro forma net tangible book value of
the Company at December 27, 1997 would be $4,718,379 or $1.48 per share of
Common Stock. This would result in dilution to the public investors (i.e., the
difference between the estimated Offering price per share of Common Stock and
the net tangible book value thereof after giving effect to the Offering) of
approximately $3.02 per share. The following table illustrates the per share
dilution:
<TABLE>
<CAPTION>
PER SHARE OF
COMMON STOCK
------------
<S> <C> <C>
Assumed Offering price (1)........................................................ $ 4.50
Net tangible book value at December 27, 1997.................................... $0.16
Increase in net tangible book value attributable to new investors............... 1.32
-----
Pro forma net tangible book value after the Offering.............................. 1.48
------
Pro forma dilution of net tangible book value to the new investors................ $ 3.02
------
------
</TABLE>
- ------------------
(1) Offering price before deduction of estimated expenses of the Offering and
underwriting discounts and exclusive of the purchase price of $.10 per
Warrant.
The following table summarizes as of December 27, 1997, the number and
percentage of shares of Common Stock purchased from the Company, the percentage
and amount of total consideration paid and the average price per share paid by
existing stockholders and by new investors pursuant to the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................ 1,945,000 60.9 $ 319,441 5.4 $0.16
New investors........................................ 1,250,000 39.1 5,625,000 94.6 $4.50
--------- ------- ---------- -------
Total......................................... 3,195,000 100% $5,944,441 100%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
The above table assumes no exercise of the Underwriter's over-allotment
option. If the Underwriter's over-allotment option is exercised in full, the new
investors will have paid $6,468,750 for 1,437,500 shares of Common Stock,
representing approximately 95.3% of the total consideration, for 42.5% of the
total number of shares of Common Stock outstanding.
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<PAGE>
CAPITALIZATION
The following table sets forth as of December 27, 1997: (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to reflect (a) the issuance and sale of the 1,250,000 shares of Common
Stock and 1,250,000 Warrants offered hereby; (b) the anticipated acquisition of
CDP; and (c) receipt of the net proceeds therefrom, after deducting underwriting
discounts and commissions and estimated offering expenses. This table should be
read in conjunction with the Company's consolidated financial statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 27, 1997
---------------------------------------
AS
ACTUAL PRO FORMA ADJUSTED(1)
---------- ---------- -----------
<S> <C> <C> <C>
Notes payable........................................................... $1,922,425 $2,055,010 $ 2,055,010
Stockholders' Equity:
Common Stock, $.001 par value, 10,000,000 shares authorized, 1,945,000
issued and outstanding, actual; 10,000,000 shares authorized,
3,195,000 issued and outstanding, as adjusted(1)................... 1,945 1,945 3,195
Additional paid-in capital............................................ 317,496 473,899 4,872,649
Retained earnings..................................................... 131,403 (157,465) (157,465)
Total stockholders' equity......................................... 450,844 318,379 4,718,379
---------- ---------- -----------
Total capitalization............................................... $2,373,269 $2,373,389 $ 6,773,389
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------------
(1) Assumes no exercise of the (i) Warrants; (ii) Underwriter's over-allotment
option; and (iii) Underwriter's Warrants.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed for the purpose of developing or acquiring
domestically manufactured injection molded plastic products or assemblies,
redesigning the products to improve function and appearance and, by using its
relationships with vendors in China, to manufacture the products offshore in
order to deliver them at lower prices and improved profit margins. EHC, the
Company's principal subsidiary, has over 28 years of experience in the design,
marketing and manufacture of injection molded plastic components used in
industrial, consumer and military products. The Company believes that its
long-term experience in the manufacture and assembly of injection molded plastic
components, coupled with direct access to manufacturing facilities in China,
will enable the Company to provide improved products at lower prices with
improved profit margins.
RESULTS OF OPERATIONS
For the year ended December 27, 1997 compared to the year ended December
28, 1996:
NET SALES
Net sales increased $656,706, or 12%, to $6,054,747 for the year ended
December 27, 1997 from $5,398,041 for the year ended December 28, 1996. This
increase was attributable to changes in marketing and increased expenditures for
advertising, new catalogs, web sites and database marketing. The Company's on
time deliveries (97%) and excellent quality (less than 1% rejection) were also
factors in the increased sales volume. A substantial portion of the Company's
sales are made to large publicly-owned customers, generally on an open account
basis.
GROSS PROFITS
The Company realized an overall gross margin percentage for the year ended
December 27, 1997 of 37% which represents an increase from the 32% experienced
during the year ended December 28, 1996. This increase can be attributed to
improved manufacturing processes, quality and purchasing controls, as well as
price increases on certain products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses increased $298,455, or 20%, to
$1,770,893 for the year ended December 27, 1997 from $1,472,438 for the year
ended December 28, 1996. Such increase can be attributed to increases in
consulting, advertising and officers' compensation. In addition, there were
approximately $101,000 of expenses incurred for the development of a new product
line.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital requirements,
capital expenditures and principal and interest payments on debt. Historically,
the Company's primary source of liquidity has been cash flow generated
internally from operations, supplemented by bank borrowings and long-term
equipment financing. The Company's cash increased to $351,740 on December 27,
1997 from $67,910 at December 28, 1996. Cash flow provided by operating
activities was $424,244 for the year ended December 27, 1997 on net income of
$245,355. Increases in inventory were a result of an increase in production
levels to meet anticipated sales. The increases in accounts receivable and
accounts payable were the result of the increase in volume of business.
Cash used in investing activities for the years ended December 27, 1997 and
December 28, 1996 was $190,089 and $122,944, respectively, which consisted of
cash for purchase of tooling, molds and machinery and equipment. As of the date
of this Prospectus, the Company does not plan on any material commitments for
capital expenditures.
Net cash used in financing activities for the year ended December 27, 1997
was $196,000. Cash of $357,000 was provided from borrowings on available credit
lines, which was offset by $348,000 principal repayment on
21
<PAGE>
loans, $133,000 in distributions to shareholders and $71,000 in payments to
officers and affiliated companies. For the year ended December 28, 1996, cash
that was provided by financing activities was primarily due to a new financing
facility with Republic National Bank. Cash used in financing activities for the
year ended December 28, 1996 was due to the Company's repayment of a financing
facility with Citibank with the funds received from Republic National Bank and
repayment of various long-term equipment loans. The Company currently has no
plans or agreements to seek loan financing. The Company may choose to seek
additional financing to provide additional working capital for expansion at some
time in the future. Such financing may include further bank financing or
long-term equipment loans.
The Company believes that the proceeds of the Offering combined with its
cash balances and cash generated from operations will satisfy the Company's
working capital, business development and capital expenditures for at least the
next 12 months. The Company may require additional sources of liquidity to fund
future growth, including additional equity offerings or debt financings. The
Company routinely evaluates potential acquisitions of businesses, products and
technologies that complement its business. As of the date of this Prospectus,
the Company has no agreements with respect to such transactions. Increased costs
or expenses, acquisition prospects and opportunities for growth or expansion may
increase the demand for working capital, necessitating additional capital
infusions.
EHC has been named in two unrelated legal proceedings. The Company will
defend vigorously each of these actions. The Company does not believe that the
outcomes of these actions will have a material adverse effect on the Company's
financial position or overall trends in results of operations. See
'Business--Legal Proceedings.'
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, 'Accounting for Stock-Based
Compensation' ('SFAS No. 123'), which prescribes a method of accounting for
stock-based compensation that determines compensation expenses based on fair
market value measured at grant date. SFAS No. 123 gives companies that grant
stock options or other equity instruments to employees, the option of either
adopting the new rules or continuing current accounting; however, disclosure
would be required of the pro forma amounts as if the new rules had been adopted.
SFAS No. 123 is effective for transactions entered into in fiscal years that
begin after December 15, 1995.
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
'Reporting Comprehensive Income' ('SFAS 130'), which establishes standards for
reporting and display of comprehensive income and its components, and Statement
No. 131, 'Disclosures about Segments of an Enterprise and Related Information'
('SFAS 131'), which establishes standards for the way public business
enterprises are to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosure about
products and services, geographic areas and major customers. SFAS No. 130 and
No. 131 are effective for years beginning after December 15, 1997.
22
<PAGE>
BUSINESS
THE COMPANY
The Company, through its principal subsidiary, EHC, has over 28 years of
experience in the design, marketing and manufacture of injection molded plastic
components and assemblies, including consumer, industrial and military knobs and
custom and mechanical assemblies, including Micro Verniers, push or pull-to-turn
clutch knobs and detent knobs. EHC also produces hardware items, including shaft
locks, mounting brackets, test jack covers, cabinet bumpers and captive screws.
The Company believes that EHC's long-term success is due to the average 29-year
experience of its management team, strategic acquisitions of complementary
companies, products and product lines and its ability to adapt new technologies
and advanced manufacturing concepts to produce high-quality products at
competitive prices.
EHC meets a full range of its clients' needs by maintaining early and total
involvement, from the design and development to the ultimate manufacture and
packaging of the product. When a custom-made product is initially requested,
experienced EHC application engineers assist the customer during the concept
design stage, which the Company considers critical to the success of the
manufacturing process. During this stage, EHC application engineers draw upon
the Company's experience, expertise and technological innovation to assist
clients in reducing costs, meet accelerated market schedules and ensure high
quality workmanship.
Once EHC has assisted successfully the client in creating an efficient
design, such design is converted into a model. EHC currently has a relationship
with a local university whereby EHC utilizes such university's Computer Assisted
Manufacturing three dimensional computer graphics database, which is compatible
with EHC's system, to generate a drawing used to manufacture tooling, a Computer
Aided Design ('CAD'). The CAD is then used in conjunction with a Rapid Prototype
Machine to produce a design model for aesthetic evaluations.
The Company incorporates many other technological innovations and advanced
manufacturing practices to consolidate the Company's workplace. Through such
innovations, the Company is able to achieve state-of-the-art quality control
procedures and consistently produce high quality products. For the fiscal year
ended December 27, 1997, 97% of EHC's manufacturing projects were delivered on
time and less than 1% of its products were returned due to unsatisfactory
quality.
The Company is currently having its facility certified for International
Quality Standard ('ISO') 9001, a manufacturing certification required by
European companies and looked upon favorably throughout the world. ISO 9001
requires the Company to meet certain stringent requirements established in
Europe to ensure that the facility's manufacturing processes, equipment and
associated quality control systems will satisfy specific customer requirements.
The Company believes that obtaining ISO 9001 certification will benefit the
Company in the plastic manufacturing market, both nationally and
internationally.
The Company's factory is divided into manufacturing cells, which the
Company believes accounts for a more efficient workplace and improved quality.
Each cell is responsible for a complete manufacturing process, from machining to
assembly and from indicia marking to the ultimate packaging of the product. The
cells are operated by teams of cross-trained employees knowledgeable of both the
product and the manufacturing process. The cell teams meet regularly to solve
problems and develop more efficient manufacturing methods. The Company believes
that this consolidated manufacturing approach results in high quality, on-time
delivery, competitive pricing and a loyal customer base.
Additionally, the Company believes that it has created a cost-effective
workplace by decreasing inventory costs. The Company's 'pull' (also known as
'JIT,' which stands for Just-in-Time) system is designed to introduce raw
materials and components at the time necessary to fulfill customer orders. This
system eliminates costs associated with the storage and handling of large
amounts of inventory. The Company believes that it also accounts for a more
timely rate of delivery. The 'pull' system depends on long-term relationships
with suppliers. The Company believes that due to its strong relationships with
suppliers and its well-trained workforce, the system will continue to provide
efficient and prompt delivery.
The Company offers secondary operations on its molded products. Services
such as hand painting, pad printing, hot stamping and engraving are provided at
a customer's request. These marking systems can be used on
23
<PAGE>
most materials and varying contours. The Company believes that these extra
manufacturing services allow for greater flexibility and increased customer
satisfaction.
GROWTH STRATEGY
The Company intends to expand its operations through (i) the acquisition
and development of injection molded plastic products and assemblies manufactured
in the United States having niche markets, (ii) the redesigning of such products
and assemblies, if necessary, to improve their function and appearance and (iii)
the manufacturing of such products and assemblies in China at lower prices and
improved profit margins. Through a Consultant who will be named a director of
the Company prior to the date of this Prospectus, the Company has established
direct contact with manufacturers in China and has initiated pilot overseas
manufacturing projects in China of small-scale production runs of the
Ultratherm(Registered) and separate projects through an affiliated company, AFC.
See 'Risk Factors--Risks Relating to Manufacturing in China.'
While small businesses comparable in size to the Company often encounter
major difficulties in securing manufacturing projects in China due to
prohibitive broker commissions and agency fees incurred both domestically and
abroad, which, based upon the Company's experience could account for up to 25%
of the entire manufacturing project, the Company, through the Consultant, has
established direct contact with certain manufacturers in China, allowing the
Company to avoid such commissions and fees and realize the benefit from lower
costs of raw materials and labor. For example, EHC's principal raw materials at
this time, ABS and polycarbonate, cost up to 50% less in China and the cost of
labor for factory workers in China was approximately $.33 per hour for the year
ended December 27, 1997. Based on its assessment of pilot manufacturing projects
in China through AFC, the Company believes that it can reduce its overall
domestic manufacturing costs, including shipping and tariffs, by more than 25%.
See 'Risk Factors--Risks Relating to Manufacturing in China' and 'Certain
Transactions.'
PRODUCTS
Control Knobs and Assemblies
The Company, through its wholly-owned subsidiary EHC, manufactures a full
line of instrument control knobs, handles, value-added custom molding, dials and
similar devices for consumer, industrial and military electronics equipment.
EHC's knobs are used for precise setting of switches, on/off switches, volume
controls and critical setting of instrumentation switches. EHC manufactures many
of the knobs to order based on the customers' exacting specifications as well as
its standard line. Customers of EHC order the knobs by specifying particular
descriptions and features, including the shaft diameter, outer diameter, overall
size, height, color, illumination, dials and markings, such as lines, dots or
numbers.
Overall, the number of different types of knobs EHC has manufactured in its
history is in the order of tens of thousands. Some knobs are manufactured with
mechanical devices built into the knob. For example, one of the Company's
locking knobs turns freely and sets upon depression, resisting shock, vibration
or accidental movement. A clutch knob is one that continues to turn even after
the device has reached a pre-set limit so that the pressure of the turning knob
does not damage the equipment. Most knobs are resin-based and injection molded.
Some knobs are painted and some are delivered 'as molded.' Certain knobs are
made with aluminum inlays, caps, dials or skirts and may have fittings of
screws, bushings, springs or set screws.
The knobs and assemblies can be sold in lots of as few as one knob or as
large as 500,000 units or more. EHC requires a $150 per order minimum charge.
Knob prices to the customer range from as low as $.09 per unit to as much as
$150 per unit.
The Pull Pack(Trademark)
The Company, through its wholly-owned subsidiary, CDP, has entered into an
exclusive international licensing agreement to manufacture, market, sell and
sub-license the Pull Pack(Trademark), a proprietary Disc packaging system. The
Pull Pack(Trademark) is a redesigned 'Jewel Box,' the packaging used currently
for Compact Discs, CD ROMs and DVD, and won the International Design Magazine
Award for Packaging in 1993. The Pull Pack(Trademark) implements a drawer-like
mechanism, avoiding the problems associated with currently available Disc
packaging
24
<PAGE>
involving fragile hinges, difficulty in opening and the removal of Discs and
descriptive literature. The drawer carries the Disc, and a tray above the drawer
holds the descriptive booklet. When the drawer is opened, the tray is pushed
forward one-half inch beyond the outer housing, providing the user with the
option of removing the Disc or the booklet or both. The drawer also holds an
inlay card, which provides the graphics for the spine and the bottom of the
package. See 'Business--Patents, Trademarks, Licenses and Royalty Rights.'
The Company is negotiating currently with manufacturers in China to produce
the Pull Pack(Trademark) and plans, with no assurance, to market the product as
a specialty packaging system to a targeted niche market, including CD ROM,
special production, retail replacement packaging and rental and institutional
markets such as video stores, lending libraries and technical research
facilities. The Pull Pack(Trademark) won the International Design Magazine Award
for Packaging in 1993. For the year ended 1996, the market for Jewel Boxes sold
in the music industry in the United States was approximately $82,000,000 and the
Company believes that the target niche market for the Pull Pack(Trademark) is
approximately $50,000,000. See 'Risk Factors--Developmental Stage Product,' and
'Risk Factors--Risks Relating to Manufacturing in China.'
The Company believes that the Pull Pack(Trademark) is well positioned to be
sold in specialty niche markets. Consumer research was conducted for the Company
both nationally and separately in New York City by Chilton Research in September
1992. Such research has consistently shown that more than 80% of Compact Disc
consumers polled prefer the Pull Pack(Trademark) to the Jewel Box. The Company
believes that the Pull Pack(Trademark) receives favorable reviews because it
complements what has made the Compact Disc the preferred format in both the
entertainment and educational industries, ease of use and durability.
The Company intentionally relies upon current technologies and materials
used for the Pull Pack(Trademark) so that it can be interchangeable with current
Jewel Boxes. The Pull Pack(Trademark) is exactly the same size as the standard
Jewel Box and is made from the same clear plastic. It also uses the same graphic
inserts as Jewel Boxes, a booklet and inlay card, which allows Compact Disc
distributors to use Jewel Boxes or the Pull Pack(Trademark) interchangeably
without requiring special graphics to be printed. The Company believes that this
complete compatibility will also allow the Pull Pack(Trademark) to be sold
directly to consumers who want to replace their broken Jewel Boxes with a more
durable and convenient package.
The Company anticipates that a pre-production model of the Pull
Pack(Trademark) will be ready in May 1998 for market research and small
production runs. Once the Company has determined that the product is ready for
production, it will commence manufacturing. The Company will initially target
market opportunities such as replacement packaging, CD ROM packaging, rental and
institutional markets, such as video stores, lending libraries and technical
research facilities, special production markets and newly developed discs. As
consumers become familiar with the Pull Pack(Trademark), the Company intends to
sell directly to the OEMs, who are the original content providers in both the
music and CD ROM industries.
Replacement Market. The Company will target several key distribution
avenues in the replacement market, including mass merchandisers, office supply,
computer and music chains. The Company believes that it is important to sell the
Pull Pack(Trademark) in all of the above channels, and not just in music stores.
The Company estimates that approximately 100 million replacement units are sold
per year at an average price of $0.15 per unit, or an aggregate of $15,000,000.
Computer stores and music retailers sell replacement Jewel Boxes so that
consumers can replace broken packages. Compact Discs distributed in paperboard
sleeves also fuel the replacement market as consumers replace such packaging
with Jewel Boxes. The Company believes that individual retail chains sell
approximately 30,000 replacement packages per month. Chain stores, office supply
stores, computer chains, mail order companies and music stores all sell
replacement Jewel Boxes, usually in packs of three, five or ten.
CD Rom Market. CD ROMs are frequently housed in Jewel Box packaging. CD
ROM volume in the United States is estimated to have reached 278 million units
in 1995. Computer and CD ROM use continues to increase, as consumer retail store
purchases supplement software sold with computers by OEMs.
Industrial Market. Many businesses prepare demonstration or promotional
discs for music, software, and product promotion, including such retailer
catalogs as L.L. Bean, Williams-Sonoma and Tiffany. Although those Compact Discs
or CD ROMs which are distributed free of charge are not included in statistical
data bases, the Company estimates that approximately 20 million of these units
were distributed in the year ended December 27,
25
<PAGE>
1997. Consequently, the Company believes that the market available for the Pull
Pack(Trademark) is statistically understated.
Special Production Market. Special packaging is created frequently to meet
the demands of major recording artists or provide a uniquely distinctive package
for special promotions. Such packaging is assembled by hand because automated
insertion machines cannot accommodate non-standard packaging. The Company
believes it has the ability to provide such packaging at reasonable costs. The
Company estimates that approximately five to ten million units are packaged in
this manner each year.
Newly Developed Discs. The Company believes that new disc formats that
have recently reached the market or are expected to do so in the near future
will also expand market opportunities. These formats include the Photo Compact
Disc and the DVD, both of which can be packaged using a variation of the Pull
Pack(Trademark) concept. DVDs are the same size as the compact discs now in use,
but will be sold in packages two inches larger than a Jewel Box to fit into
current retail video racks. The Company believes that the laser packaging may
provide an opportunity for the Pull Pack(Trademark) to become the package of
choice. Other entertainment formats--Digital Compact Cassettes and Digital Audio
Tape--are also available and can be packaged using a variation of the Pull
Pack(Trademark) concept.
OEM Market. The OEM market is the largest user of Compact Disc packaging.
The Company estimates that OEMs used approximately one billion units in the
United States for the year ended December 27, 1997. Once the Pull
Pack(Trademark) has become visible in the replacement market, the Company
believes that it is likely to be requested by consumers for new title releases.
The Company will attempt to capitalize on this demand by marketing directly to
the OEM market. The six major OEMs for music are: Warner/Elektra/Atlantic, Sony,
PolyGram, Capitol/EMI, MCA and BMG. These OEMs generally have their Jewel Boxes
manufactured by outside sources. Jewel Boxes are delivered partially assembled,
and the OEM uses automated equipment to insert the Discs and graphic components
and to shrink wrap the packages. If sales volume in the OEM market exceeds the
Company's ability to increase production, the Company will consider licensing
the right to produce the Pull Pack(Trademark) to the OEM or its supplier.
The Company also plans to introduce a more durable version of the Pull
Pack(Trademark) which will utilize the same tooling as the standard Pull
Pack(Trademark), but will be made out of a tough, clear plastic called zylar.
These zylar packages will be marketed to rental and institutional markets such
as video stores, lending libraries and technical research facilities, so that
the Company will have access to different market segments simply by substituting
one raw material for another.
The Ultratherm(Registered)
The Company, through its wholly-owned subsidiary, DTI, has entered into an
exclusive worldwide license agreement for the life of the patent, dated as of
February 1, 1998, to manufacture, market and sell the Ultratherm(Registered), a
proprietary portable hand-held massager implementing alternating hot and cold
therapy and massage for the relief of discomfort associated with sports and
occupational injuries. The Ultratherm(Registered) weighs 21 ounces, measures
eight inches long and maintains temperatures ranging from 42degreesF to
115degreesF for approximately one hour on a rechargeable battery contained
within its ergometrically-shaped die-cast aluminum body. Once placed against the
body, the contour fitting thermal dome concentrates and directs the heat or cold
and massage vibrations into the affected areas underlying the soft tissue. See
'Business--Patents, Trademarks, Licenses and Royalty Rights.'
The Ultratherm(Registered) is being sold currently through specialty
catalogs and stores, including Brookstone. The Ultratherm(Registered) won the
grand prize in Hammacher Schlemmer's annual Search for Invention in March, 1992
and was Editors Choice with a four star rating by Golf Magazine in June 1996.
The Ultratherm(Registered) has been manufactured historically by the Company in
the United States and retails at approximately $200 per unit. A manufacturer in
China has commenced small-scale manufacturing of the Ultratherm(Registered) at
reduced costs and the Company believes that such reduced costs will be passed on
to consumers. The Company anticipates full-scale manufacturing of the
Ultratherm(Registered) at such reduced costs in Summer 1998. See 'Risk
Factors--Developmental Stage Products.'
26
<PAGE>
COMPETITION
Knob and Assembly Manufacturing/Injection Molding
The Company believes that its segment of the plastic injection molding
industry is highly fragmented and that no one participant is dominant in the
industry. The Company believes that the most important competitive factor in
this industry is investment in tooling, as the high cost of tooling relative to
the low revenue of individual products is a barrier to entry in this market. The
Company currently owns approximately 1,500 tools, which gives it the ability to
manufacture over 10,000 products and assemblies. Other key competitive factors
in this industry include quality of products, depth of industry knowledge, a
sizable customer base, ability to provide products on a timely basis, level of
experience, breadth of products and services offered, responsiveness to customer
requests and ability to produce a wide variety of projects in a timely manner
and at a competitive price.
The Company believes that its main competitors in the control knobs and
components segment of the injection molding industry are the following: Rogan
Corporation, which produces instrument and consumer knobs; Philips Plastic
Manufacturing Corporation, which produces consumer knobs; Davies Molding
Company, which produces instrument knobs; and Aerospace Knob Company, which
produces military avionic knobs. With its range of consumer, instrument and
military knobs, EHC strives to provide the broadest and most extensive line of
knobs and assemblies in order to maintain an advantage over its competitors.
Pull Pack(Trademark)
The Company believes that the primary competition for the Pull
Pack(Trademark) is the current Jewel Box manufactured by Atlanta Precision
Molding, Auriga and International Packaging Corp. Other companies have developed
alternative Compact Disc packaging, but the Company believes that none have
proved to be a challenge at this time because production costs are prohibitive
or the designs have not been accepted by the general public or OEMs. Three of
these packages are the Laserfile, from Laserfile Inc., the Utmost Rotary CD
Case, from Co-Joint Corp. and the Alpha Pak, from Alpha Enterprise, Inc.
Ultratherm(Registered)
The Ultratherm(Registered) competes with the entire massager market,
including those massagers with only massage capability or only heat and massage
capability. The Company believes that the Ultratherm(Registered) is unique in
this market as it is the only massager which provides both heat and cold,
combined with massaging capabilities. See 'Risk Factors--Unrealized Profits from
the Ultratherm(Registered).'
SUPPLIERS AND RAW MATERIALS
EHC's principal raw materials consist of Lexan (polycarbonate), nylon, ABS
and polypropylene. Such materials are generally available commodities sold to
the injection molding industry by a variety of suppliers. While a shortage of a
particular supplier would not affect the Company, a general shortage of raw
materials could adversely impact the Company. The Company has never experienced
a shortage in raw materials and does not anticipate any shortages to occur in
the reasonably foreseeable future, however, there can be no assurance that there
will not be a shortage of raw materials. See 'Risk Factors--Dependence Upon
Suppliers and Raw Materials.'
As the Company begins to contract for the manufacturing of products in
China, including the Pull Pack(Trademark) and the Ultratherm(Registered), the
Chinese manufacturers will arrange for all raw materials from local suppliers.
While the Company believes that there will be no shortage of such materials
overseas and that prices will remain comparatively low, there can be no
assurance that no shortages will occur. In addition, the Company is subject to
the risk of political or economic dislocation which could affect the
availability or cost of raw materials. The Company anticipates that the raw
materials used for the Pull Pack(Trademark) will consist of either crystal
styrene, general purpose styrene, polypropylene or zylar. The principal raw
materials used for the Ultratherm(Registered) are die-cast aluminum and
electronic components.
27
<PAGE>
DISTRIBUTION METHODS
EHC sells its products solely to industrial customers either directly or
through major distributors. EHC never sells directly to retail consumers.
Approximately 20% of EHC's products are principally sold through the following
distributors: Newark Electronics, Allied Electronics, Inc., Bisco Industries,
Inc., Alatech Electronics, Inc. and Peerless Electronics, Inc. The
Ultratherm(Registered) is sold directly to retail outlets without the use of
distributors.
GOVERNMENT APPROVAL
The Company is subject to certain regulations in connection with its sale
of products to the U.S. Military. In order to sell many of its products to the
U.S. Military, a product must be listed on one of the Qualified Product Lists
('QPL'). Certain of the Company's products have been approved for inclusion on
QPLs, so that they may be sold to the U.S. Military. The Company's products have
been listed on the QPLs each year since 1970. Should the Company lose such QPL
approval, it would lose its ability to sell products to the U.S. Military.
Expansion into foreign markets may require the Company to comply with additional
regulatory requirements. Various countries may regulate the import of the
Company's products. Any such export or import restrictions, new legislation or
regulation or government enforcement of existing regulations could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that the Company will be able to
comply with additional applicable laws and regulations without excessive cost or
business interruption and failure to comply could have a material adverse effect
on the Company. See 'Risk Factors--Government Regulation of Technology.'
RESEARCH AND DEVELOPMENT
The Company believes that its commitment to research and development has
distinguished the Company among its competitors. The Company, through EHC, spent
approximately $150,000 in 1997 on both new tooling for new knob designs and the
Ultratherm(Registered), and $75,000 in 1996 on new tooling for new knob designs.
The Company, through CDP, has spent approximately $46,000 for research and
development on the Pull Pack(Trademark) since 1995. The Company has secured
various federal government and New York State monies for product development,
including a $150,000 federal assistance/match funds grant. The Company's
customers do not bear research and development costs, as all research and
development is funded solely by the Company, some of which is through federal or
state funding.
PATENTS, TRADEMARKS, LICENSES AND ROYALTY RIGHTS
The Company, through its wholly-owned subsidiary, CDP, entered into a
minimum five-year license agreement dated as of March 1, 1998 with Inch, Inc.,
to obtain the exclusive worldwide licensing rights to make, use, sell and
sublicense the Pull Pack(Trademark). In consideration of the exclusive license,
the Company agreed to pay Inch, Inc. royalties of (i) 2% of the annual gross
sales of Pull Pack(Trademark) less any returns, credits and allowances; (ii) 25%
of any royalties or fees from sublicensees; and (iii) a $30,000 reimbursement
payment for expenses incurred in obtaining a patent. The Company is entitled to
exclusive license rights of Pull Pack(Trademark) for a minimum of five years and
a maximum of the United States life of the patent, which expires in 2012. If
royalties paid to Inch, Inc. do not equal or exceed a minimum total of $30,000
from February 1, 1999 to February 1, 2000, $40,000 for the next 12 month period
and $50,000 for each 12 month period thereafter, or if CDP does not obtain a
cash capital investment of $1,000,000 by February 28, 2000, Inch, Inc. shall
have the right to terminate the exclusive license agreement upon 30 days notice.
In the event that the exclusive license is terminated, CDP shall continue to
hold a non-exclusive license at the above referenced royalty rate. Inch, Inc.
has also agreed to provide consulting services to CDP at the rate of $50 per
hour prior to the sale of 10,000 units and $110 per hour after the sale of
10,000 units. CDP has agreed to indemnify and hold harmless Inch, Inc. against
all damages and liabilities arising out of the manufacture of the Pull
Pack(Trademark).
DTI entered into an agreement dated as of February 1, 1998 with Dr. Richard
Deutsch for exclusive worldwide licensing rights for the life of the patent to
the Ultratherm(Registered). Under this agreement, DTI is to receive all rights,
title and interest in all tooling, schematics, drawings and customer lists
relating to the Ultratherm(Registered) and an assignment of the registered
trademark in consideration for $100,000 payable immediately following the
Effective Date and waiving any financial obligations of Dr. Deutsch to the
Company. From February 1, 1998
28
<PAGE>
until the Effective Date, Dr. Deutsch will receive reimbursement for
tooling expenses in the amount of $1,200 per week. After the Effective Date, Dr.
Deutsch will receive royalties in the following amounts: (a) for the first year,
the greater of (i) 5% of gross sales per month less any returns, credits,
discounts (exclusive of promotions), allowances and shipping expenses, or (ii)
$75,000 per year and (b) for each year thereafter, the greater of (i) 5% of net
sales per month or (ii) $50,000 per year. The exclusivity of this agreement may
be lost if royalty payments are not made in a timely fashion to Dr. Deutsch. EHC
will receive a limited right to the patent covering the Ultratherm(Registered),
as the original patent covers more products than just the
Ultratherm(Registered). EHC has agreed to maintain liability insurance and
indemnify Dr. Deutsch from and against all claims and liabilities in connection
with the Ultratherm(Registered) and the agreement.
In 1995, Pull Pack(Trademark) was issued Patent No. 5,383,544. The patent
expires in 2012. The Ultratherm(Registered) was issued Patent No. 5,097,828 as a
Thermoelectric Therapy Device on March 24, 1992, and Patent No. 5,209,227 as a
Thermoelectric Therapy Device and Moisturizing Device on May 11, 1993.
The Company's wholly-owned subsidiary, EHC, also owns patents on certain
knobs and coupling devices. EHC has applied for patents on a spring locking
release apparatus and a tactile detent knob.
Ultratherm(Registered) is a registered trademark under United States
Registration No. 1,949,930 and shall be assigned to the Company upon payment of
$100,000 immediately after the Effective Date. The trademark was issued on
January 23, 1996 to Dr. Deutsch. The trademark registration may be renewed for
as long as the mark is used.
The Company may apply for additional patents relating to other aspects of
its production. There can be no assurance as to the degree of protection which
existing or future patents, if any, may afford the Company, or that competitors
will not develop similar or superior methods or products outside the protection
of any patent issued to the Company. See 'Risk Factors--Risks Relating to
Licensing Agreements' and 'Risk Factors--Uncertainty Regarding Patents and
Proprietary Information.'
EMPLOYEES
As of February 1, 1998, the Company had a total of 105 employees. 33 of
these employees work on a part-time basis. 45 of the Company's employees are
represented in collective bargaining agreements by Local 531, International
Brotherhood of Teamsters, AFL-CIO. 15 employees work in Sales and Administration
while 90 employees are factory workers.
The Company believes it has a satisfactory relationship with its unionized
labor and has never experienced a work stoppage. The current collective
bargaining agreement expires May 9, 1998 and the Company anticipates renewing
such agreement. Union employees are covered by the Sick & Welfare Fund, Local
531, to which the Company contributes a specified amount each year.
PROPERTY
The Company operates from an approximately 20,000 square foot facility
located in Farmingdale, New York. The facility is owned and operated by K&G
Realty Associates, a partnership owned by David L. Kassel, the Company's
Chairman, and Harry Goodman, the Company's Vice President. The mortgage on the
facility is guaranteed by EHC. The Company's lease, currently under a 10-year
extension, expires in December 2005. The annual rent is currently $138,000 per
year, and provides for annual adjustments equal to the increase in the Consumer
Price Index. Pursuant to a rider to the lease agreement dated as of March 1,
1998, EHC shall pay as additional rent, any and all real property taxes for the
demised premises in excess of $26,000 per annum. The Company believes that the
property is suitable for its presently foreseen use. See 'Certain Transactions.'
LEGAL PROCEEDINGS
On or about June 22, 1995, a former non-officer employee of the Company
filed a complaint against EHC with the Division of Human Rights of the State of
New York ('Division') seeking damages for improper termination due to age
discrimination. The case is currently in the discovery phase. The Company is
vigorously defending this action and believes that it has a meritorious defense.
Although the ultimate outcome of the action cannot be determined at this time,
the Company does not believe that the outcome will have a material adverse
effect on the Company's financial position or overall trends in results of
operations.
29
<PAGE>
On or about August 14, 1997, a non-officer former employee of the Company
filed a complaint against EHC with the Division seeking damages for failure to
properly handle alleged sexual harassment by another non-officer employee. On or
about December 18, 1997, the Company received an Order from the Division
dismissing the complaint because the matter is presently being litigated in
federal court. The Company received a complaint filed in the United States
District Court for the Eastern District of New York on or about February 12,
1998. The Company filed a motion to dismiss the complaint on March 16, 1998. The
Company will vigorously defend this action and believes it has a meritorious
defense. The Company does not believe that the outcome will have a material
adverse effect on the Company's financial position or overall trends in results
of operation.
The Company is not aware of any other legal proceedings to which it is a
party.
30
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the executive
officers, directors and significant employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- ---- -----------------------------------------------------
<S> <C> <C>
Andrew Franzone...................................... 60 Chief Executive Officer and President, Director
David L. Kassel...................................... 62 Chairman of the Board of Directors
Harry Goodman........................................ 71 Vice President and Secretary, Director
Steven Sgammato...................................... 38 Chief Financial Officer
Frank Pellegrino..................................... 52 Vice President of Engineering
</TABLE>
Andrew Franzone has served as President of EHC since 1987. Mr. Franzone has
also served as president of AFC since 1984. Mr. Franzone served as Chairman of
the Board of Directors and President of Ackerman Bodnar Corp., a manufacturer of
interior aircraft lighting, from 1974 through 1983.
David L. Kassel founded EHC in 1970. Mr. Kassel has served as Chairman of
EHC since 1975 and President of CDP since 1995. From 1983 until 1995, he was
Chairman of the Board of Directors of American Safety Closure Corp., a company
engaged in the manufacturing of bottle caps. Mr. Kassel has been the Chairman
and principal stockholder of AFC since 1984. Mr. Kassel has been the Chairman of
Memory Protection Devices, Inc., a company engaged in the manufacturing of
devices for the protection of computer memory, since 1987. Mr. Kassel has been a
partner in K&G Realty Associates, a privately-held real estate company, since
1978.
Harry Goodman served as Vice President of EHC since 1970. Mr. Goodman has
been a partner at K&G Realty Associates since 1978. Mr. Goodman has served as an
officer of AFC since 1984. Mr. Goodman has served as an officer of Memory
Protection Devices, Inc. since 1987.
Steven Sgammato has served as Chief Financial Officer of EHC since 1987.
Mr. Sgammato served as the Manager of Accounting for Gimbel's Corp. from 1982 to
1986, and the Manager of Accounting of Conran's Habitat from 1986 to 1987. Mr.
Sgammato earned an MBA in Management from Dowling College, located in Oakdale,
New York, in 1997.
Frank Pellegrino has served as the Vice President of Engineering of EHC
since 1974.
BOARD COMMITTEES
The Board of Directors of the Company has established a compensation
committee (the 'Compensation Committee') and an audit committee (the 'Audit
Committee'). The Compensation Committee, which will consist of David L. Kassel,
and two independent directors to be named to the Board of Directors of the
Company immediately preceding the Effective Date (the 'Independent Directors'),
determines the salaries and bonuses of the Company's executive officers. The
Compensation Committee also administers the Company's 1998 Stock Option and
Grant Plan. Mr. Kassel and the Independent Directors will serve as members of
the Audit Committee. The Audit Committee recommends the appointment of auditors
and oversees the accounting and audit functions of the Company.
DIRECTOR COMPENSATION
Directors receive a fee of $300 per month for serving on the Board of
Directors and reimbursement of reasonable expenses incurred in attending
meetings. All directors hold office until the next annual meeting of the
stockholders and the election and qualification of their successors. Executive
officers are elected by the Board of Directors annually and serve at the
discretion of the Board.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by the
Company to the Company's Chief Executive Officer and the Company's other
executive officer whose compensation exceeded $100,000 for the fiscal year ended
December 27, 1997. No other officer received cash compensation in excess of
$100,000 in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FOR YEAR ENDED
DECEMBER 27, 1997
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ---------------------------------------------------------------------------- ----------- ----- ------------
<S> <C> <C> <C>
Andrew Franzone
Chief Executive Officer and President..................................... $ 96,585 $ 0 $ 7,800
David L. Kassel
Chairman of the Board..................................................... $ 226,588(1) $ 0 $ 10,400
</TABLE>
- ------------------
(1) Includes $150,000 in consideration for consulting services provided by Mr.
Kassel to the Company, which payment was postponed in return for a note due
January 1, 1999. See 'Certain Transactions.'
EMPLOYMENT AGREEMENTS
The Company entered into executive employment agreements as of March 15,
1998 with Andrew Franzone, David L. Kassel and Harry Goodman, each an
'Executive.' The term of each of the employment agreements lasts until March 2,
2008 (the 'Term'). The annual base salaries of Messrs. Franzone, Kassel and
Goodman under their employment agreements are $125,000, $100,000 and $100,000,
respectively, with annual salary adjustments equal to the greater of 5% or an
increase equal to the Consumer Price Index. Each Executive is entitled to fringe
benefits and an annual bonus to be determined by the Board of Directors. Each
Executive can be terminated for cause (as defined in the employment agreements)
with all future compensation ceasing. If the Executive dies during the Term or
is unable to competently and continuously perform the duties assigned to him
because of ill health or other disability (as defined in the employment
agreements), the Executive or the Executive's estate or beneficiaries shall be
entitled to full compensation for three years following the date thereof. If the
Executive is terminated without cause, the Executive shall be entitled to full
compensation for the remainder of the Term. If the Executive resigns, his
compensation ceases as of the date of his resignation. During the period of
employment and for a period of two years thereafter, the Executives are
prohibited from competing with the Company; provided, however, that the
Executives may provide services to other noncompeting businesses. In order for a
restrictive covenant to be enforceable under applicable state law, the covenant
must be limited in terms of scope and duration. While the Company believes that
the covenants in the employment contracts are enforceable, there can be no
assurance that a court will declare them to be enforceable under particular
circumstances.
CASH GAIN SHARING PROGRAM
The Company's wholly-owned subsidiary, EHC, has a Cash Gain Sharing Program
(the 'Program'), which entitles all full-time, non-union employees (including
supervisory union employees) and other key EHC employees (excluding officers),
as determined by the Company, to extra compensation based on the cash profits of
EHC. The distributions are based on a schedule of Company objectives determined
each year by the Company. If positive cash flow averages less than $2,000 per
week in a quarter, the Company will not make any distributions. The Company
considers a full-time employee to work at least 30 hours per week. Employees
must complete a 90-day probationary period before they are eligible to
participate in the Program. For the year ended December 27, 1997, the Company
distributed $87,000 pursuant to the Program.
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<PAGE>
STOCK OPTION AND GRANT PLAN
The Stock Option and Grant Plan (the 'Grant Plan') was adopted by the
Company's Board of Directors as of March 17, 1998 and approved by its
stockholders as of March 17, 1998. Officers, directors, employees, consultants
and key persons of the Company are eligible to participate in the Grant Plan.
The Grant Plan is designed to provide employees and such other individuals with
a performance incentive, a direct stake in the Company's future welfare and an
incentive to remain with the Company. The Company believes that the Grant Plan
will encourage qualified persons to seek employment with the Company.
The Grant Plan provides for grants of shares of Common Stock or options to
purchase shares of Common Stock intended to qualify as incentive stock options
under Section 422 of the Code ('Incentive Options'), as well as options that do
not so qualify ('Non-Qualified Options'). The Grant Plan provides that an
aggregate of 300,000 shares of Common Stock are available for award.
The Grant Plan provides that it will be administered by the Compensation
Committee. The Compensation Committee determines which officers, directors,
employees, consultants and key persons shall receive shares or options, whether
the individual shall receive shares or options and if options, the terms and
conditions of the options, including the exercise price of each option, the term
of each option, the number of shares of Common Stock to be covered by each
option and any performance objectives or vesting standards applicable to each
option. Subject to the requirements of the Code, the Compensation Committee will
also designate whether the options granted shall be Incentive Options or
Non-Qualified Options. Pursuant to an agreement between the Company and the
Underwriter, no grants of options or shares can be made for 24 months after the
Effective Date, without the approval of the Underwriter. See 'Underwriting.'
401(k) PLAN
The Company sponsors, through EHC and an affiliated company, AFC, a 401(k)
Plan (the 'Plan') available for all non-union employees and union supervisors
who have attained the age of 21 and have completed three months of service with
the Company. The Plan was adopted effective August 1, 1993 and was amended
effective August 1, 1997. Under the Plan's qualified cash or deferred
arrangement, a participant may, under an arrangement with the Company, elect to
contribute 1% to 15% of his or her annual compensation to the Plan on behalf of
the participant, in lieu of the participant's current receipt of such
compensation. In addition to the employee's contribution, the Company may, but
need not, make discretionary contributions to the Plan in such amounts as it
determines. As of the date of this Prospectus, the Company has not contributed
to the Plan. A participant's contributions made under the qualified cash or
deferred arrangement are 100% vested at all times. Discretionary contributions
become vested thereafter at the rate of 20% for each additional full year of
service, until 100% vested. Benefits are payable upon a participant's
termination of employment for any reason, in the form of one lump sum payment or
in installments extending over a fixed period of years, depending upon the
employee's election.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of the
Prospectus, based upon 1,945,000 shares of Common Stock outstanding and as
adjusted to reflect the sale of 1,250,000 shares of Common Stock by the Company,
with respect to the beneficial ownership of shares of Common Stock by (i) each
person or a group of persons known by the Company to be the owner of more than
5% of the outstanding shares of Common Stock, (ii) each director, (iii) each
executive officer named in the Summary Compensation Table under the caption
'Management,' and (iv) all officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
AMOUNT AND SHARES OWNED
NATURE OF -------------------------
BENEFICIAL PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) OFFERING OFFERING(3)
- -------------------------------------------------------------------------- ------------ -------- -----------
<S> <C> <C> <C>
David L. Kassel........................................................... 700,000 36% 22%
Andrew Franzone........................................................... 500,000 26% 16%
Harry Goodman............................................................. 500,000 26% 16%
Robert Gillings........................................................... 200,000 10% 6%
All Directors and Officers as a Group..................................... 1,700,000 87% 54%
</TABLE>
- ------------------
(1) Unless otherwise indicated, the address of each individual is c/o the
Company, 320 Broad Hollow Road, Farmingdale, New York 11735.
(2) For purposes of the above table, a person or group of persons is deemed to
have 'beneficial ownership' of any shares that such person or group has the
right to acquire within 60 days after such date; and for purposes of
computing the percentage of outstanding shares held by each person or group
on a given date, such shares are deemed to be outstanding, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
Beneficial ownership is determined in accordance with Rule 13d-3 under the
Exchange Act and is generally determined by voting power or investment power
with respect to securities. Except as indicated by footnote, and subject to
community property laws where applicable, the Company believes that the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(3) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) 187,500 shares of Common Stock reserved
for issuance upon exercise of the Underwriter's over-allotment option; (iii)
187,500 shares of Common Stock issuable upon exercise of the Warrants
underlying the Underwriter's over-allotment option; (iv) 125,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants; and (v) 125,000 shares of Common Stock issuable upon exercise of
the Warrants underlying the Underwriter's Warrants.
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CERTAIN TRANSACTIONS
REORGANIZATION
The Company was founded in 1970 as EHC, a New York corporation, and will be
reorganized immediately prior to the Effective Date as a Delaware holding
company with three wholly-owned subsidiaries, EHC, CDP and DTI (the
'Reorganization'). In March 1998, as part of the Reorganization, the Company
acquired, solely in exchange for Common Stock of the Company, all of the
outstanding capital stock of EHC and CDP. The Company also acquired in March
1998 all of the outstanding capital stock of DTI for $1,000.
LEASES
EHC leases its facility in Farmingdale, New York from K&G Realty Associates
('K&G'), a partnership owned by David L. Kassel and Harry Goodman, both officers
and directors of the Company. The lease agreement has been extended until
December 31, 2005. The annual rent is currently $138,000, with increases equal
to the increase in the Consumer Price Index. The mortgage agreement between Long
Island Commercial Bank and K&G dated November 28, 1995 is a 15 year
self-liquidating adjustable mortgage currently bearing 9 1/2% interest in the
original principal amount of $610,000. The mortgage is guaranteed by EHC. By
agreement dated November 28, 1995, K&G has assigned all rents due from EHC to
the Long Island Commercial Bank. The Company believes that the terms and
consideration of this lease are no less favorable to the Company than a lease
from a third party.
EHC subleases 400 square feet of its facilities to Memory Protection
Devices, Inc. ('MPD') for $250 per month. Two officers of the Company, David L.
Kassel and Harry Goodman, also serve as the Chairman and Vice President of MPD,
respectively. Aside from the sublease, there are no intercompany transactions
between EHC and MPD. The Company believes that the terms and consideration of
this sublease are commensurate with subleases to third parties.
CREDIT FACILITIES
On July 29, 1996, EHC entered into a term loan agreement (the 'Term Loan')
with Republic National Bank of New York for the principal amount of $500,000, of
which $375,000 remains outstanding as of December 27, 1997. The Term Loan bears
interest at 1% above the annual interest rate established by Republic National
Bank as its reference rate for domestic commercial loans and is payable in 11
quarterly installments, commencing on October 31, 1996 with a final payment of
the remaining balance due and payable on July 31, 1999. EHC may prepay the loan
without penalty. The Term Loan is guaranteed by David L. Kassel, Harry Goodman,
Andrew Franzone and AFC, an affiliate of the Company. See 'Certain
Transactions--Affiliated Transactions.'
On July 29, 1996, EHC entered into a demand loan agreement (the 'Demand
Loan') with Republic National Bank for the principal amount of $1,000,000, of
which $753,000 remains outstanding as of December 27, 1997. The Demand Loan
bears interest at 1/2% above the interest rate established by Republic National
Bank.
EHC entered into a loan agreement (the 'Loan' and together with the Term
Loan and Demand Loan, the 'Indebtedness') with Long Island Development
Corporation ('LIDC') for the principal amount of $250,000 on February 21, 1997,
of which $235,171 remains outstanding as of December 27, 1997, and granted LIDC
a security interest in all of its personal property. The Loan is payable in 120
monthly installments with interest at 7% per annum, commencing on March 1, 1997
and continuing until February 1, 2007. The loan is guaranteed by AFC, Andrew
Franzone, David L. Kassel and Harry Goodman.
The Company is negotiating for the agreement of the banks to release the
personal guarantees of Messrs. Franzone, Kassel and Goodman in connection with
the Offering. See 'Notes to Financial Statements.'
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<PAGE>
OFFICER LOANS
Messrs. Kassel and Goodman have advanced funds to the Company for working
capital. The loans are evidenced by five notes bearing interest at a rate of 10%
per annum and requiring monthly payments over the term of five years. As of
December 27, 1997, three loans are payable to David L. Kassel, two from EHC in
the amounts of $171,186 and $53,185, respectively and one from CDP is in the
amount of $107,500, of which the Company is a guarantor. Two loans are payable
to Harry Goodman, one for $50,972 and another for $133,911.
During 1997, David L. Kassel rendered services to the Company in
consideration for the sum of $150,000. At the request of the Company, in lieu of
a lump sum payment, Mr.Kassel accepted a promissory note due on January 1, 1999,
with interest at 6% per annum.
AFFILIATED TRANSACTIONS
EHC is a guarantor of two loan agreements between AFC, an affiliate of the
Company, and Republic National Bank for the aggregate principal amount of
$1,000,000, of which $738,000 has been borrowed and remains outstanding as of
December 27, 1997. Each of the directors of EHC are also stockholders, directors
and officers of AFC, a New York corporation incorporated in 1985. The Vice
President and General Manager of AFC, Andrew Franzone, Jr., is the son of the
President and Chief Executive Officer of the Company. Additionally, EHC and AFC
have entered into an engineering consulting and services agreement on a fee-for-
services basis. Under such agreement, (a) EHC will have the exclusive right to
manufacture or contract for the manufacturing of certain AFC products on a time
and materials basis, and (b) EHC will not develop products in the following
lines other than for AFC: (i) point of sale display items; (ii) cabinet and
furniture plastic hardware; and (iii) endcaps on cylinders or mailing tubes. The
Company believes the terms and consideration of this agreement are no less
favorable to the Company than agreements with similar unrelated third party
companies.
A potential director of the Company, Ms. Bao-Wen Chen, also provides
consulting services to the Company on behalf of her company, B.C. China
Business, Inc. ('BCI'), in connection with the Company's manufacturing in China.
The agreement between the Company and BCI provides that BCI will provide such
consulting services until March 1, 2008 at the minimum hourly rate of $50 per
hour and an amount equivalent to 1.5% of the net cost of products manufactured
in China up to $5,000,000 per year and 1% of net costs exceeding $5,000,000. Ms.
Chen is also entitled to receive over a five-year period (i) 25,000 shares of
unregistered Common Stock of the Company and (ii) 25,000 options to purchase
Common Stock. The Company believes that consulting fees paid to Ms. Chen and
grants of Common Stock or options are no less favorable to the Company than
consulting fees it would pay to other third party consultants.
In order to obtain the benefit of better purchasing opportunities, some
goods or services, including insurance, are purchased jointly by one or more of
EHC, AFC, K&G and MPD and the cost of such goods or services are shared by the
parties.
KEY MAN LIFE INSURANCE
EHC is the beneficiary of a key man life insurance policy on behalf of
Andrew Franzone, the Chief Executive Officer of the Company. In the event of Mr.
Franzone's death or disability the Company will receive $200,000. The Company
currently is applying for an additional $300,000 of key man insurance on the
life of Mr. Franzone.
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<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company upon completion of the Offering
will consist of 10,000,000 shares of Common Stock, of which 3,195,000 shares
will be issued and outstanding, and 1,000,000 shares of undesignated Preferred
Stock issuable in series by the Board of Directors, of which no shares will be
issued and outstanding. The following summary description of the capital stock
of the Company is qualified in its entirety by reference to the Company's
Certificate of Incorporation (the 'Certificate') and By-laws (the 'By-laws'),
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part. The Certificate and By-laws have been duly adopted by
the stockholders and the Board of Directors of the Company.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. The holders of Common Stock are not
entitled to cumulative voting rights. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to the rights of the holders of Preferred
Stock, if and when issued. The holders of Common Stock have no preemptive or
other subscription rights.
The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors from funds
legally available therefor, with each share of Common Stock sharing equally in
such dividends. The possible issuance of Preferred Stock with a preference over
Common Stock as to dividends could impact the dividend rights of holders of
Common Stock.
There are no redemption provisions with respect to the Common Stock. All
outstanding shares of Common Stock, including the shares offered hereby, are, or
will be upon completion of the Offering, fully paid and non-assessable.
The By-laws provide that the number of directors shall be fixed by the
Board of Directors. Any director of the Company may be removed from office only
for cause by the holders of two-thirds of the outstanding shares of the Company
entitled to vote at an election of directors.
UNDESIGNATED PREFERRED STOCK
The Board of Directors of the Company is authorized, without further action
of the stockholders of the Company, to issue up to 1,000,000 shares of Preferred
Stock in one or more classes or series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and the
number of shares constituting any series or the designation of such series.
However, pursuant to the Certificate, the holders of Preferred Stock would not
have cumulative voting rights with respect to the election of directors. Any
such Preferred Stock issued by the Company may rank prior to the Common Stock as
to dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of Common Stock.
The purpose of authorizing the Board of Directors to issue Preferred Stock
is, in part, to eliminate delays associated with a stockholder vote on specific
issuances. The issuance of Preferred Stock could adversely affect the voting
power of the holders of Common Stock and could have the effect of delaying,
deferring, or preventing a change in control of the Company.
WARRANTS
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the warrant agreement (the 'Warrant Agreement')
among the Company, the Underwriter, and Continental Stock Transfer and Trust
Company (the 'Warrant Agent'). A copy of the Warrant Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part. As
of the date hereof, there are no Warrants outstanding. See 'Additional
Information.'
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time over a five year period commencing one year
after the Effective Date, one share of Common Stock at $5.00 per
37
<PAGE>
share, subject to adjustment in accordance with the anti-dilution provisions and
other provisions referred to below. The holder of any Warrant may exercise such
Warrant by surrendering the certificate representing the Warrant to the Warrant
Agent, with the subscription form thereon properly completed and executed,
together with payment of the exercise price. The Warrants may be exercised at
any time in whole or in part at the applicable exercise price until expiration
of the Warrants. No fractional shares will be issued upon the exercise of the
Warrants.
The exercise price of the Warrants bears no relationship to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.
Adjustments. The holders of the Warrants are protected against dilution of
their interests by adjustments, as set forth in the Warrant Agreement, of the
exercise price and the number of shares of Common Stock purchasable upon the
exercise of the Warrants upon the occurrence of certain events, including stock
dividends, stock splits, combinations or reclassification of the Common Stock,
or sale by the Company of shares of its Common Stock or other securities
convertible into Common Stock at a price below the then-applicable exercise
price of the Warrants. Additionally, an adjustment would be made in the case of
a reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or merger
in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company in order to enable warrantholders
to acquire the kind and number of shares of stock or other securities or
property receivable in such event by a holder of the number of shares of Common
Stock that might otherwise have been purchased upon the exercise of the Warrant.
Redemption Provisions. Commencing 12 months after the date of this
Prospectus, all, but not less than all, of the Warrants are subject to
redemption at $0.10 per Warrant on not less than 30 days' prior written notice
to the holders of the Warrants provided the per share closing price or bid
quotation of the Common Stock as reported on Nasdaq or BSE, if traded thereon,
or if not traded thereon, the average closing sale price if listed on a national
or regional securities exchange equals or exceeds 150% of the then current
exercise price (subject to adjustment) for any 20 trading days within a period
of 30 consecutive trading days ending on the 15th day prior to the date on which
the Company gives notice of redemption. The Warrants will be exercisable until
the close of business on the day immediately preceding the date fixed for
redemption in such notice. If any Warrant called for redemption is not exercised
by such time, it will cease to be exercisable and the holder will be entitled
only to the redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time commencing one year after the Effective Date and prior to their expiration
date five years from the date of this Prospectus, at which time the Warrants
become wholly void and of no value. If a market for the Warrants develops, the
holder may sell the Warrants instead of exercising them. There can be no
assurance, however, that a market for the Warrants will develop or continue.
The Warrants are not exercisable unless, at the time of the exercise, the
Company has an effective Registration Statement including the shares of Common
Stock issuable upon exercise of the Warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the exercising holder of the Warrants. Although the
Company will use its best efforts to have all the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there can be assurance that it will be able to do
so.
The Warrants are separately transferable immediately upon issuance.
Although the Warrants will not knowingly be sold to purchasers in jurisdictions
in which the Warrants are not registered or otherwise qualified for sale or
exemption, purchasers may buy Warrants in the after-market in, or may move to,
jurisdictions in which Warrants and the Common Stock underlying the Warrants are
not so registered or qualified or exempt. In this event, the Company would be
unable lawfully to issue Common Stock to those persons desiring to exercise
their Warrants (and the Warrants would not be exercisable by those persons)
unless and until the Warrants and the underlying Common Stock are registered, or
qualified for sale in jurisdictions in which such purchasers reside, or any
exemption from registration or qualification exists in such jurisdiction.
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<PAGE>
Warrantholder Not a Stockholder. The Warrants do not confer upon holders
any voting, dividend or other rights as stockholders of the Company.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. No modifications may be
made to the Warrants without the consent of two-thirds of the warrantholders.
UNDERWRITER'S WARRANTS
In connection with the Offering, the Company has agreed to issue to the
Underwriter the Underwriter's Warrants, which consist of up to 125,000 shares of
Common Stock and 125,000 Warrants, initially exercisable at 125% of the Offering
price as of the Effective Date. The Underwriter's Warrants will be exercisable
for a period of four years commencing one year after the closing of the
Offering. The Underwriter is entitled to certain registration rights under the
Securities Act relating to the shares of Common Stock received upon the exercise
of the Underwriter's Warrants. The Underwriter's Warrants may not be sold,
transferred, assigned, pledged or hypothecated during the first year after
issuance, except to the Underwriter and persons who are officers and partners
thereof. The exercise price and the number of shares of Common Stock that may be
purchased are subject to adjustment pursuant to anti-dilution provisions of the
Underwriter's Warrants. See 'Underwriting.'
DELAWARE LAW WITH RESPECT TO BUSINESS COMBINATIONS
As of the date of this Prospectus, the Company will be subject to the State
of Delaware's 'business combination' statute, Section 203 of the Delaware
General Corporation Law. In general, such statute prohibits a publicly-held
Delaware corporation from engaging in a 'business combination' with a person who
is an 'interested stockholder' for a period of three years after the date of the
transaction in which that person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A 'business
combination' includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder. An 'interested stockholder' is
a person who, together with affiliates, owns (or, within three years prior to
the proposed business combination, did own) 15% or more of the Delaware
corporation's voting stock. The statute could prohibit or delay mergers or other
takeovers or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company has
included in its Certificate a provision to eliminate the personal liability of
its directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, subject to certain exceptions. In addition, the
By-laws of the Company provide that the Company is required to indemnify its
officers and directors, employees and agents under certain circumstances,
including those circumstances in which indemnification would otherwise be
discretionary, and the Company is required to advance expenses to its officers
and directors as incurred in connection with proceedings against them for which
they may be indemnified. The By-laws provide that the Company, among other
things, will indemnify such officers and directors, employees and agents against
certain liabilities that may arise by reason of their status or service as
directors, officers, or employees (other than liabilities arising from willful
misconduct of a culpable nature), and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified. At
present, the Company is not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of the Company in
which indemnification would be required or permitted. The Company believes that
its charter provisions and indemnification agreements are necessary to attract
and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company on the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Securities, the Company will, unless in the
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<PAGE>
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer and Trust Company.
REPORTS TO STOCKHOLDERS
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
As of the Effective Date, the Company has registered its Common Stock and
Warrants under the provisions of Section 12(g) of the Exchange Act, and the
Company has agreed that it will use its best efforts to continue to maintain
such registration for a minimum of five years from the Effective Date. Such
registration will require the Company to comply with periodic reporting, proxy
solicitation and certain other requirements of the Exchange Act.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have 3,195,000
shares of Common Stock outstanding (3,382,500 shares if the Underwriter's
over-allotment option is exercised in full and assuming no exercise of Warrants
or the Underwriter's Warrants). Of these shares, the 1,250,000 shares sold in
the Offering (1,437,500 shares if the Underwriter's over-allotment option is
exercised in full) will be freely tradeable. The remaining 1,945,000 shares are
deemed to be 'restricted securities,' as that term is defined under Rule 144, in
that such shares were issued and sold by the Company in private transactions not
involving a public offering and are not currently part of an effective
registration. Except for the 'lock-up' agreements described below, such shares
are eligible for sale under Rule 144, or will become so eligible at various
times. In addition, the Company has granted the Underwriter demand and piggyback
registration rights with respect to the securities issuable upon exercise of the
Underwriter's Warrants. No prediction can be made as to the effect, if any, that
sales of shares of Common Stock or even the availability of such shares for sale
will have on the market prices prevailing from time to time. If the holders of
the shares, eligible for registration so choose, they could require the Company
to register all of said shares at anytime. See 'Underwriting.'
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least one year is entitled
to sell, within any three month period, a number of shares that does not exceed
the greater of 1% of the total number of outstanding shares of the same class
or, if the Common Stock is quoted on Nasdaq, the average weekly trading volume
during the four calendar weeks preceding the sale. A person who has not been an
affiliate of the Company for at least the three months immediately preceding the
sale and who has beneficially owned shares of Common Stock for at least two
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
Except upon the consent of the Underwriter, all executive officers, all
directors and holders of substantially all of the outstanding stock of the
Company have agreed not to, directly or indirectly, issue, offer, agree or offer
to sell, sell, transfer, assign, encumber, grant an option for the purchase or
sale of, pledge, hypothecate or otherwise dispose of any beneficial interest in
such securities for a period of 24 months following the Effective Date.
Provided, however, that if either of Messrs. Franzone, Kassel or Goodman dies
during the lock-up period, each estate of the deceased may cause the Company to
redeem 250,000 shares for $500,000 and may sell the remaining shares pursuant to
Rule 144, provided that the estate does not sell more than 25,000 shares within
any three-month period. For a period of two years from the date of this
Prospectus, the Company has also agreed not to file any registration statement
relating to the offering or sale of the Company's securities (not including a
registration statement on Form S-8 on behalf of employees) without the consent
of the Underwriter.
Prior to the Offering, there has been no market for the Securities and no
prediction can be made as to the effect, if any, that market sales of shares of
the Securities or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
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UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement (the 'Underwriting Agreement') to purchase from the
Company and the Company has agreed to sell to the Underwriter on a firm
commitment basis, 1,250,000 shares of Common Stock and 1,250,000 Warrants.
The Underwriter is committed to purchase all the shares of Common Stock and
Warrants offered hereby, if any of such Securities are purchased. The
Underwriting Agreement provides that the obligations of the Underwriter is
subject to conditions precedent specified therein.
The Company has been advised by the Underwriter that the Underwriter
proposes initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per share of Common
Stock and $ per Warrant. Such dealers may reallow a concession not in excess
of $ per share of Common Stock and $ per Warrant to certain other dealers.
After the commencement of the Offering, the public offering prices, concession
and reallowance may be changed by the Underwriter.
The Underwriter has informed the Company that it does not expect sales to
discretionary accounts.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act that arise out of or
are in connection with the Registration Statement, Prospectus and related
Exhibits filed with the Commission. The Company has also agreed to pay to the
Underwriter a non-accountable expense allowance equal to 3% of the gross
proceeds derived from the sale of the Securities underwritten hereby, provided
that the underwriting is successfully completed.
The Company has granted to the Underwriter an over-allotment option,
exercisable during the 45-day period from the Effective Date, to purchase up to
an additional 187,500 shares of Common Stock and/or 187,500 Warrants at the
Offering price per share of Common Stock and Warrants, respectively, offered
hereby, less underwriting discounts and the non-accountable expense allowance.
Such option may be exercised only for the purpose of covering over-allotments,
if any, incurred in the sale of the Securities offered hereby. To the extent
such option is exercised in whole or in part, the Underwriter will have a firm
commitment, subject to certain conditions, to purchase the number of the
additional securities proportionate to its initial commitment.
In connection with the Offering, the Company agreed to sell to the
Underwriter, for nominal consideration, warrants to purchase from the Company up
to 125,000 shares of Common Stock and 125,000 Warrants (the 'Underwriter's
Warrants'). The Underwriter's Warrants are initially exercisable at 125% of the
Offering price as of the Effective Date, for a period of four years, commencing
one year after the Effective Date. The Underwriter's Warrants are restricted
from sale, transfer, assignment or hypothecation for a period of 12 months from
the date hereof, except to officers of the Underwriter. The Underwriter's
Warrants provide for adjustment in the number of shares of Common Stock and
Warrants issuable upon the exercise thereof and in the exercise price of the
Underwriter's Warrants as a result of certain events, including subdivisions and
combinations of the Common Stock. The Underwriter's Warrants grant to the
holders thereof certain rights of registration for the securities issuable upon
exercise thereof.
Except upon the consent of the Underwriter, all executive officers, all
directors and holders of substantially all of the outstanding stock of the
Company have agreed not to, directly or indirectly, issue, offer, agree or offer
to sell, sell, transfer, assign, encumber, grant an option for the purchase or
sale of, pledge, hypothecate or otherwise dispose of any beneficial interest in
such securities for a period of 24 months following the Effective Date.
Provided, however, that if either of Messrs. Franzone, Kassel or Goodman dies
during the lock-up period, the estate of the deceased may cause the Company to
redeem 250,000 shares for $500,000 and may sell the remaining shares pursuant to
Rule 144, provided that the estate does not sell more than 25,000 shares within
any three month period. If any such transaction is entered into or any such
lock-ups are waived or shortened, to the extent that the Company is aware of any
such transaction or early release and is required to disclose the same, such
information will be disclosed in a timely manner. In addition, without the
consent of the Underwriter and except pursuant to the exercise of the Warrants
and the Underwriter's Warrants, the Company has agreed that it, its subsidiaries
and affiliates shall not sell or offer for sale any of their equity securities
commencing the Effective Date for a period of 24 months thereafter. The Company
has further agreed for a period of 24 months following the Effective Date not to
file a registration statement covering any of its securities without the prior
42
<PAGE>
written consent of the Underwriter, except a registration statement on Form S-8
relating to the Company's employees.
Upon the exercise of any Warrants more than one year after the date of this
Prospectus, which exercise was solicited by the Underwriter, and to the extent
not inconsistent with the guidelines of the NASD and the Rules and Regulations
of the Commission, the Company has agreed to pay the Underwriter a commission
which shall not exceed 5% of the aggregate exercise price of such Warrants in
connection with bona fide services provided by the Underwriter relating to any
warrant solicitation. In addition, the individual must designate the firm
entitled to payment of such warrant solicitation fee. However, no compensation
will be paid to the Underwriter in connection with the exercise of the Warrants
if (a) the market price of the Common Stock is lower than the exercise price,
(b) the Warrants were held in a discretionary account or (c) the Warrants are
exercised in an unsolicited transaction. Unless granted an exemption by the
Commission from Rule 10b-6 under the Exchange Act, the Underwriter will be
prohibited from engaging in any market-making activities with regard to the
Company's securities for the period from five business days (or other such
applicable periods as Rule 10b-6 may provide) prior to any solicitation of the
exercise of the Warrants until the later of their termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
the Underwriter may have to receive a fee. As a result, the Underwriter may be
unable to continue to provide a market for the Company's securities during
certain periods while the Warrants are exercisable. If the Underwriter has
engaged in any of the activities prohibited by Rule 10b-6 during the periods
described above, the Underwriter undertakes to waive unconditionally its right
to receive a commission on the exercise of such Warrants.
In connection with the Offering, the Underwriter and its affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the Common Stock and Warrants. Such transactions may include
stabilization transactions effected in accordance with Rule 104 of Regulation M,
pursuant to which such persons may bid for or purchase Common Stock or Warrants
for the purpose of stabilizing their respective market prices. The Underwriter
also may create a short position for the account of such Underwriter by selling
more shares of Common Stock or Warrants in connection with the Offering than it
is committed to purchase from the Company, and in such case may purchase shares
of Common Stock or Warrants in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriter may
also cover all or a portion of such short position by exercising the
Underwriter's over-allotment option. In addition, the Underwriter may impose
'penalty bids' under contractual arrangements whereby it may reclaim from a
dealer participating in the Offering the selling concession with respect to
shares of Common Stock and Warrants that are distributed in the Offering but
subsequently purchased for the account of the Underwriter in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock and Warrants at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and if they are undertaken they may be
discounted at any time.
The Company has agreed that the Underwriter may nominate for election one
person to the Company's Board of Directors (which person shall be reasonably
acceptable to the Company) for a period of three years from the Effective Date.
In the event the Underwriter elects not to exercise the right, then the
Underwriter may designate one person to attend meetings of the Company's Board
of Directors as a non-voting advisor (which person shall be reasonably
acceptable to the Company). Such designee shall be entitled to attend all such
meetings of the Company's Board of Directors and to receive all notices and
other correspondence and communications sent by the Company to members of its
Board of Directors. The Company has agreed to reimburse designees of the
Underwriter for their out-of-pocket expenses incurred in connection with their
attendance of meetings of the Company's Board of Directors.
Prior to the Offering, there has been no public market for the Common Stock
or the Warrants. Consequently, the Offering prices of the Securities has been
determined by negotiation between the Company and the Underwriter and does not
necessarily bear any relationship to the Company's asset value, net worth or
other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, included the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, its capital
structure, the market for initial public offerings and certain other factors as
were deemed relevant.
43
<PAGE>
The Company has granted the Underwriter, for a period of three years after
the date of this Prospectus, a right of first refusal with respect to the
underwriting or placement of any public or private sale of debt or equity
securities (excluding sales to employees) by the Company or any subsidiary of
the Company.
The Company has agreed to retain the Underwriter as a financial consultant
to the Company for a period of 24 months after the Offering for an aggregate fee
of $120,000 payable in full upon consummation of the Offering. As the Company's
financial consultant, the Underwriter will provide investment banking services
to the Company as well as seek out strategic transactions on behalf of the
Company and furnish advice to the Company in connection with any such
transactions.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See 'Additional Information.'
LEGAL MATTERS
The legality of the Securities offered hereby will be passed upon for the
Company by Koerner Silberberg & Weiner, LLP, New York, New York. Morrison Cohen
Singer & Weinstein, LLP, New York, New York, has acted as counsel for the
Underwriter in connection with the Offering.
EXPERTS
The consolidated financial statements of the Company and its subsidiary,
EHC, and the financial statements of CDP appearing in this Prospectus and
elsewhere in the Registration Statement, have been audited by Feldman, Radin &
Co., P.C., independent auditors, as set forth in their report and appearing
elsewhere herein, and are included in reliance upon the authority of such firm
as experts in accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the 'Registration Statement') under the Securities Act and the rules and
regulations promulgated thereunder, with respect to the Common Stock and
Warrants offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information regarding the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as part of the Registration Statement. Statements contained in
the Prospectus concerning the provisions or contents of any contract, agreement
or other document referred to herein are not necessarily complete with respect
to each such contract, agreement or document filed as an exhibit to the
Registration Statement. Reference is made to such exhibits for a more complete
description of the matters involved, and each statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected and copied at the public reference facilities maintained at the
Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. The Company is
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) System. The electronically filed documents, including reports, proxy
statements and other information, are maintained by the Commission and may be
found at the World Wide Web site http://www.sec.gov.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
Independent Accountants' Report..................................................................... F-2
Consolidated Balance Sheet--for the year ended December 27, 1997.................................... F-3
Consolidated Statements Of Operations--for the years ended December 27, 1997 and December 28,
1996.............................................................................................. F-4
Consolidated Statement of Changes in Stockholders' Equity--for the years ended December 27, 1997 and
December 28, 1996................................................................................. F-5
Consolidated Statements of Cash Flows--for the years ended December 27, 1997 and December 28,
1996.............................................................................................. F-6
Notes To Consolidated Financial Statements.......................................................... F-7 to F-11
COMPACT DISC PACKAGING CORP. (A DEVELOPMENT STAGE ENTERPRISE)
Independent Accountants' Report..................................................................... F-12
Balance Sheet--for the year ended December 31, 1997................................................. F-13
Statements of Operations--for the years ended December 31, 1997 and 1996 and for the period January
31, 1995 (inception) to December 31,1997.......................................................... F-14
Statement of Stockholders Equity--for the period January 31, 1995 (inception) to December 31,
1997.............................................................................................. F-15
Statements of Cash Flows--for the years ended December 31, 1997 and 1996 and for the period January
31, 1995 (inception) to December 31, 1997......................................................... F-16
Notes to Financial Statements....................................................................... F-17
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Description of Unaudited Pro Forma Consolidated Financial Statements................................ F-18
Unaudited Pro Forma Consolidated Balance Sheet--for the year ended December 27, 1997................ F-19
Unaudited Pro Forma Consolidated Statement of Operations--for the year ended December 27, 1997...... F-20
Unaudited Pro Forma Consolidated Statement of Operations--for the year ended December 28, 1996...... F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors of
International Plastic Technologies, Inc.
Farmingdale, New York
We have audited the accompanying consolidated balance sheet of International
Plastic Technologies, Inc. and its subsidiary, Electronic Hardware Corp., as of
December 27, 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 27, 1997 and
December 28, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, the financial position of International Plastic Technologies, Inc. and
its subsidiary, Electronic Hardware Corp., as of December 27, 1997 and the
results of their operations and their cash flows for each of the years ended
December 27, 1997 and December 28, 1996 in conformity with generally accepted
accounting principles.
/s/ Feldman Radin & Co., P.C.
----------------------------
FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
March 6, 1998
F-2
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 27, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.............................................................................................. $ 351,740
Accounts Receivable (net of allowance for doubtful accounts of $14,000)........................... 681,471
Inventory......................................................................................... 1,043,011
Prepaid expenses.................................................................................. 96,026
----------
Total current assets........................................................................... $2,172,248
Property and equipment--net......................................................................... 623,215
Other assets........................................................................................ 112,357
----------
$2,907,820
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................................. $ 392,696
Current portion of long term debt (including $129,210 to officer/stockholders).................... 1,001,181
Current portion of obligations under capital lease................................................ 53,315
----------
Total current liabilities...................................................................... 1,447,192
----------
Long term debt (including $280,044 to officer/stockholders)......................................... 771,244
Fee payable to officer/shareholder.................................................................. 150,000
Obligations under capital leases.................................................................... 88,540
----------
Total liabilities.............................................................................. 2,456,976
----------
Stockholders' equity:
Common Stock--Par value .001 authorized, issued and outstanding 1,945,000 shares.................. 1,945
Paid in Capital................................................................................... 317,496
Retained Earnings................................................................................. 131,403
----------
Total stockholders' equity..................................................................... 450,884
----------
$2,907,820
----------
----------
</TABLE>
See notes to financial statements
F-3
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------
DECEMBER 27, DECEMBER 28,
1997 1996
--------------- ---------------
<S> <C> <C>
Net sales............................................................................ $ 6,054,747 $ 5,398,041
Cost of goods sold................................................................... 3,831,599 3,668,420
--------------- ---------------
Gross profit....................................................................... 2,223,148 1,729,621
--------------- ---------------
Operating expenses:
Selling and shipping............................................................... 472,096 427,400
General and administrative......................................................... 1,298,797 1,045,038
--------------- ---------------
Total operating expenses........................................................... 1,770,893 1,472,438
--------------- ---------------
Income from operations............................................................... 452,255 257,183
Interest expense..................................................................... (206,900) (193,138)
--------------- ---------------
Net income......................................................................... 245,355 64,045
Pro-forma income taxes............................................................... 98,000 26,000
--------------- ---------------
Pro-forma net income............................................................... $ 147,355 $ 38,045
--------------- ---------------
--------------- ---------------
Pro-forma earnings per share--basic.................................................. $ 0.08 $ 0.02
--------------- ---------------
Weighted average common shares used.................................................. 1,945,000 1,945,000
--------------- ---------------
--------------- ---------------
</TABLE>
See notes to financial statements
F-4
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance December 30, 1995............................ 1,945,000 $1,945 $ 317,496 $ 162,625 $ 482,066
Net Income........................................... 64,045 64,045
Distributions........................................ (207,243) (207,243)
--------- ------ ---------- --------- ---------
Balance December 28, 1996............................ 1,945,000 1,945 317,496 19,427 338,868
Net Income........................................... 245,355 245,355
Distributions........................................ (133,379) (133,379)
--------- ------ ---------- --------- ---------
Balance December 27, 1997............................ 1,945,000 $1,945 $ 317,496 $ 131,403 $ 450,844
--------- ------ ---------- --------- ---------
--------- ------ ---------- --------- ---------
</TABLE>
See notes to financial statements
F-5
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from operating activities:
Net income......................................................................... $ 245,355 $ 64,045
------------ ------------
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization...................................................... 346,990 365,931
Gain on sale of equipment.......................................................... (10,000) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable......................................... (41,919) 88,305
Increase in inventory.............................................................. (141,311) (45,381)
(Increase) in prepaid expenses..................................................... (1,400) (34,823)
Decrease (increase) in other assets................................................ 41,308 (109,797)
Increase (decrease) in accounts payable and accrued expenses....................... 80,576 (96,466)
Increase in consulting fee payable................................................. 150,000 --
------------ ------------
Total Adjustments........................................................ 424,244 167,769
------------ ------------
Net cash provided by operating activities............................................ 669,599 231,814
------------ ------------
Cash flows from investing activities:
Proceeds from sale of equipment.................................................... 10,000 --
Expenditures for property and equipment............................................ (200,089) (122,944)
------------ ------------
Net cash used in investing activities................................................ (190,089) (122,944)
------------ ------------
Cash flows from financing activities:
Decrease in due to officers and affiliated companies............................... (71,352) (156,184)
Distributions...................................................................... (133,379) (207,243)
Proceeds from loans................................................................ 357,100 1,647,483
Payment on loans................................................................... (348,049) (1,413,942)
------------ ------------
Net cash used in financing activities................................................ (195,680) (129,886)
------------ ------------
Net increase (decrease) in cash...................................................... 283,830 (21,016)
Cash, beginning of year.............................................................. 67,910 88,926
------------ ------------
Cash, end of year.................................................................... $ 351,740 $ 67,910
------------ ------------
------------ ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest............................................. $ 175,521 $ 168,515
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements
F-6
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS OF THE COMPANY
International Plastic Technologies, Inc. ('International') was incorporated
in February 1998 in Delaware as a holding company for the purpose of acquiring
the common stock of Electronic Hardware Corporation ('EHC'), Compact Disc
Packaging Corp. ('CDP') and Duralogic Technologies, Inc. ('DTI') in transactions
to be accounted for as a pooling of interests in contemplation of an initial
public offering of International's stock (see note 17).
The principal operating company is EHC, a company located in Farmingdale,
New York which manufactures injection molded plastic components used in
consumer, industrial and military products sold in the United States. CDP and
DTI are start up companies with no revenues as of December 27, 1997.
Accordingly, the accompanying financial statements presented herein present the
financial position and results of operations and cash flows of International and
EHC (the 'Company') as if the acquisition of EHC had occurred for all periods
presented.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Fiscal Year--The Company operates on a '52-53 week' reporting year
ending the last Saturday preceding December 31.
(b) Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(c) Inventories--Inventories are stated at the lower of cost or market.
Cost is determined principally by the use of the first-in, first-out
method.
(d) Depreciation--Fixed assets are depreciated on the straight line basis
over the estimated useful lives of the related assets.
(e) Income Taxes--EHC has made an election to be treated as an S
Corporation. Accordingly, under such election, any income taxes due or
tax benefits derived are the responsibilities of the stockholders.
(f) Net Income and Pro Forma Per Share Net Income--Net income per share is
computed based on the weighted average of number of common shares
outstanding during the period. Pro forma income and pro forma income
per share have been calculated as if the EHC was a C corporation for
federal and state income tax purposes.
(g) Accounting for Long-Lived Assets--The Company reviews long-lived assets
for impairment whenever circumstances and situations change such that
there is an indication that the carrying amounts may not be recovered.
At December 27, 1997, the Company believes that there has been no
impairment of its long-lived assets.
3. INVENTORY
Inventories consist of the following at December 27, 1997:
<TABLE>
<S> <C>
Raw Materials............................................... $ 69,409
Work in Process............................................. 116,002
Finished Goods.............................................. 347,000
Components.................................................. 510,600
----------
$1,043,011
----------
----------
</TABLE>
F-7
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following at December 27, 1997:
<TABLE>
<CAPTION>
LIFE
----------
<S> <C> <C>
Machinery and Equipment........................................... 5-10 Years $3,064,825
Tools, Dies and Molds............................................. 5-10 Years 1,193,333
Leasehold Improvements............................................ 10 Years 217,836
Office Furniture and Fixtures..................................... 5 Years 148,975
----------
4,624,969
Less: accumulated depreciation and amortization................... 4,001,754
----------
$ 623,215
----------
----------
</TABLE>
5. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain equipment under various capital lease
arrangements expiring in April 1998 through February 2002:
<TABLE>
<CAPTION>
CURRENT LONG-TERM
PORTION PORTION TOTAL
------- --------- --------
<S> <C> <C> <C>
Total minimum lease payments........................................ $63,262 $105,058 $168,320
Less: Amounts representing interest................................. 9,947 16,518 26,465
------- --------- --------
$53,315 $ 88,540 $141,855
------- --------- --------
------- --------- --------
</TABLE>
6. LOANS PAYABLE
Loans payable are comprised of the following at December 31, 1997:
<TABLE>
<S> <C> <C>
(1) Term loan payable, bank, due August 1999, payable in quarterly installments of $25,000
of principal plus interest at prime plus 1% (9.5% at December 27, 1997). The loan is
guaranteed by the Companys three officers/stockholders and requires the Company to
comply with certain covenants......................................................... 375,000
(2) Line of credit, bank (available up to $1,000,000), payable upon demand, bearing
interest at prime plus 1/2% (9% at December 27, 1997)................................. 753,000
(3) Loan agreement payable in monthly installments of $2,903 of principal and interest at
7% per annum due February 2007. The loan is guaranteed by the Company's three
officers/stockholders................................................................. 235,171
(4) Various loans payable to officer/stockholders, all bearing interest at 10% per annum,
payable in monthly installments ranging from $2,656 to $4,664 plus interest. The loans
are due in dates ranging from September 1999 through February 2007.................... 409,254
----------
1,772,425
Less: current portion................................................................. 1,001,181
----------
Long term portion..................................................................... 771,244
----------
----------
Long term debt mature as follows:
1999............................................................................. 424,715
2000............................................................................. 111,356
2001............................................................................. 84,519
2002............................................................................. 25,082
2003............................................................................. 26,895
Thereafter....................................................................... 98,677
----------
$ 771,244
----------
----------
</TABLE>
F-8
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LOANS PAYABLE--(CONTINUED)
The loans are secured by substantially all the assets of the Company. The
Company estimates that the fair value of the above loans approximates their
carrying value.
7. RETIREMENT PLAN
The Company sponsors a 401(k) savings plan covering all non-union employees
who have attained the age of 21 and have completed 3 months of service.
Participants may contribute up to 15% of their annual compensation, subject to
certain limitations. In addition, the Company may make contributions to the
plan. During the years ended December 27, 1997 and December 28, 1996, the
Company did not make any contributions to the plan.
8. CASH GAIN SHARING PROGRAM
The Company's full time, non-union employees and other key company
employees receive additional compensation as determined by cash profits, as
defined, under the Cash Gain Sharing Program. For the year ended December 27,
1997 employees earned approximately $87,000 under the program. No additional
compensation was earned in 1996.
9. STOCK OPTION AND GRANT PLAN
In March 1998, the Company adopted the Stock Option and Grant Plan (the
'Plan') which provides for the aggregate grant of 300,000 shares of the Companys
common stock or options to purchase shares of common stock.
10. KEY MAN LIFE INSURANCE
The Company is the beneficiary of a $200,000 life insurance policy on the
life of the President of the Company.
11. COLLECTIVE BARGAINING AGREEMENT
The Company's factory employees and factory supervisors are represented by
a collective bargaining agreement between Local 531, International Brotherhood
of Teamsters, AFL-CIO and the Company. Such agreement expires in May 1998.
12. RELATED PARTY TRANSACTIONS
a. Sales during the years ended December 27, 1997 and December 28, 1996
included $371,000 and $320,000, respectively to another company owned by
the three officer/stockholders of the Company. Profit on such sales was
approximately $30,000 and $20,000 for the years ended December 27, 1997
and December 28, 1996, respectively.
b. The Company leases its premises from a company owned by two of the
officer/stockholders of the Company at an annual rental of $138,000.
Such lease expires in December 2005. The mortgage on the premises in the
amount of $567,514 at December 27, 1997 is guaranteed by the Company.
c. During the year ended December 27, 1997, the Company entered into a
consulting agreement with one of its officer/stockholders for consulting
services provided in 1997. The Company executed a $150,000 promissory
note due January 1, 1999 with interest at 6% per annum for such
services.
d. The Company subleases part of its premises to another company owned by
two of the officers/stockholders for an annual rent of $3,000.
e. In March 1998, the Company entered into employment agreements with its
three officer/stockholders for a period of 10 years at an aggregate
annual base salary of $325,000. Such agreement provides for
F-9
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. RELATED PARTY TRANSACTIONS--(CONTINUED)
increases at the greater of 5% or the consumer price index and an annual
bonus to be determined by the Board of Directors.
f. In March 1998, the Company and an affiliate entered into an engineering
consulting and services agreement on a fee for services basis under
which the Company will have the right to manufacture certain of the
affiliates products.
g. The Company is a guarantor of two loans aggregating $132,000 made to CDP
by two of its stockholders.
h. The Company is a guarantor on two loans made to an entity owned by the
three officer/stockholders of the Company. At December 27, 1997 the
outstanding aggregate balance on such loans was $738,000. The loans are
secured by an assignment of the affiliates fixed assets, accounts
receivable, inventories and all other assets. The unaudited figures of
the affiliate as of December 31,1997 are as follows:
Cash........................................................ $ 346,962
Accounts Receivable (Net)................................... 507,806
Inventories................................................. 601,644
Prepaid Expenses............................................ 95,313
Fixed Assets (Net).......................................... 542,417
Prepaid and Other Assets.................................... 200,044
----------
Total Assets................................................ $2,294,186
----------
----------
Total Liabilities........................................... $1,706,695
Stockholders' Equity........................................ 587,491
----------
Total Liabilities and Stockholders' Equity.................. $2,294,186
----------
----------
13. LEGAL PROCEEDINGS
The Company is involved in two legal proceedings, one involving a complaint
against the Company for improper termination due to age discrimination and the
other alleging sexual harassment. The Company is vigorously defending these
actions and in the opinion of management, the ultimate disposition of these
cases will not have a material effect on its financial condition or results of
operations.
14. LICENSE AGREEMENT
In February 1998, DTI entered into an exclusive license agreement with an
individual which grants DTI the rights to manufacture, market and sell a
thermoelectric massager. In consideration of such rights, DTI shall pay the
individual a royalty in the first year of the greater of 5% of the monthly net
sales of the massager or $75,000 and in subsequent years the greater of 5% of
monthly net sales or $50,000. In addition, DTI shall pay $100,000 upon the
earlier of the consummation of an initial public offering of the Company's stock
or September 15, 1998, and an additional $1,200 per week until such offering is
consummated. The agreement will be terminated if the above mentioned $100,000 is
not paid.
15. CONSULTING AGREEMENT
In March 1998, the Company entered into a ten year consulting agreement in
connection with the Company's plans to develop manufacturing resources in the
People's Republic of China ('China'). The Consultant will be paid at the rate of
$50 per hour and 1.5% of the net cost, as defined, of all products manufactured
in China up to $5,000,000 per year and 1% of net costs in excess of $5,000,000.
The Consultant will also receive over a five year period 25,000 shares of
unregistered common stock of the Company and 25,000 options to purchase shares
of common stock.
F-10
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. PREFERRED STOCK
The Board of Directors of the Company is authorized, without further action
of the stockholders of the Company, to issue up to 1,000,000 shares of Preferred
Stock in one or more classes or series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and the
number of shares constituting any series or the designation of such series.
17. PROPOSED PUBLIC OFFERING
In February 1998, the Company entered into a letter of intent with an
underwriter for the sale of 1,250,000 shares of common stock at $4.50 per share
and 1,250,000 redeemable warrants at $.10 per warrant to purchase one share of
common stock at $5 per share. Simultaneously with the offering, International is
to acquire 100% of the stock of EHC and two other companies in transactions to
be accounted for as a pooling of interests. (note 1). The Company has agreed to
retain the underwriter as a consultant for a period of two years after the
offering for a fee of $120,000 payable upon the consummation of the offering.
18. STOCKHOLDERS' AGREEMENTS
In March 1998, the Company entered into an agreement with each of its three
officer/stockholders which provides that in the event of the death of the
stockholder within 24 months after the consummation of a public offering of the
Company's stock, the estate of the stockholder can require the Company to
repurchase 250,000 shares of the stockholder's stock for $500,000.
F-11
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
Compact Disc Packaging Corp.
Farmingdale, New York
We have audited the accompanying balance sheet of Compact Disc Packaging Corp.
as of December 31, 1997 and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1997 and 1996 and for the
period January 31, 1995 (inception) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the financial position of Compact Disc Packaging Corp. as
of December 31, 1997 and the results of its operations and its cash flows for
each of the years ended December 31, 1997 and 1996 and for the period from
January 31, 1995 (inception) through December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Feldman Radin & Co., P.C.
----------------------------
FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
March 18, 1998
F-12
<PAGE>
COMPACT DISC PACKAGING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................................. $ 445
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses..................................................................................... $ 325
Due to stockholders.................................................................................. 132,585
---------
Total liabilities.................................................................................. 132,910
---------
Stockholders equity:
Common stock and capital in excess of .01 par value (authorized 10,000 shares, issued and
outstanding 500 shares)......................................................................... 25,000
Deficit accumulated during development stage....................................................... (157,465)
---------
Total stockholders equity.......................................................................... (132,465)
---------
$ 445
---------
---------
</TABLE>
See notes to financial statements
F-13
<PAGE>
COMPACT DISC PACKAGING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
YEAR ENDED JANUARY 31, 1995
---------------------------- (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
------------ ------------ -------------------
<S> <C> <C> <C>
Net revenue...................................................... $ -- $ -- $ --
Costs and expenses:
Salaries....................................................... 26,000 -- 26,000
Professional and consulting fees............................... 21,821 28,310 50,866
Research and development....................................... 20,010 5,500 45,594
Other general & administrative expenses........................ 21,899 10,692 35,005
------------ ------------ -------------------
Total costs and expenses (net loss).............................. $(89,730) $(44,502) $(157,465)
------------ ------------ -------------------
------------ ------------ -------------------
</TABLE>
See notes to financial statements
F-14
<PAGE>
COMPACT DISC PACKAGING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
PAR VALUE DEFICIT
NUMBER OF AND CAPITAL IN ACCUMULATED DURING TOTAL STOCKHOLDERS'
SHARES EXCESS OF PAR DEVELOPMENT STAGE EQUITY (DEFICIENCY)
--------- -------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Balance--January 31, 1995 (inception).......... $ $ $
Issuance of Common Stock....................... 500 25,000 25,000
Net Loss....................................... (23,233) (23,233)
--- -------------- ------------------ -------------------
Balance--December 31, 1995..................... 500 25,000 (23,233) 1,767
Net Loss....................................... (44,502) (44,502)
--- -------------- ------------------ -------------------
Balance--December 31, 1996..................... 500 25,000 (67,735) (42,735)
Net Loss....................................... (89,730) (89,730)
--- -------------- ------------------ -------------------
Balance--December 31, 1997..................... 500 $ 25,000 $ (157,465) $ (132,465)
--- -------------- ------------------ -------------------
--- -------------- ------------------ -------------------
</TABLE>
See notes to financial statements
F-15
<PAGE>
COMPACT DISC PACKAGING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
YEAR ENDED JANUARY 31, 1995
---------------------------- (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
------------ ------------ -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $(89,730) $(44,502) $(157,465)
------------ ------------ -------------------
Changes in assets and liabilities:
Increase (decrease) in accrued expenses..................... (3,316) 3,293 325
------------ ------------ -------------------
Net cash used in operating activities.......................... (93,046) (41,209) (157,140)
------------ ------------ -------------------
Cash flows from financing activities:
Loans payable to stockholders............................... 82,236 27,464 132,585
Issuance of capital stock................................... -- 25,000 25,000
------------ ------------ -------------------
Net cash provided by financing activities...................... 82,236 52,464 157,585
------------ ------------ -------------------
Net increase (decrease) in cash................................ (10,810) 11,255 445
Cash, beginning of period...................................... 11,255 -- --
------------ ------------ -------------------
Cash, end of period............................................ $ 445 $ 11,255 $ 445
------------ ------------ -------------------
------------ ------------ -------------------
</TABLE>
See notes to financial statements
F-16
<PAGE>
COMPACT DISC PACKAGING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS OF THE COMPANY
Compact Disc Packaging Corp. (the 'Company') was incorporated in Delaware
on January 31, 1995 to manufacture and market a proprietary compact disc
packaging system. As of December 31, 1997 the Company has not generated any
revenue.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
b. Research and Development--Research and development expenditures are
charged to operations as incurred.
3. DUE TO STOCKHOLDERS
On January 1, 1998 the Company executed promissory notes for $107,500 and
$25,000, respectively, to two of its stockholders bearing interest at 10% per
annum due on January 1, 1999. Such amounts were for monies advanced to the
Company by the stockholders to fund company expenses. The notes are guaranteed
by an affiliate, International Plastic Technologies, Inc. (note 5).
4. LICENSE AGREEMENT
In February 1998 the Company entered into an exclusive license agreement
with a corporation which grants the Company the rights to manufacture, market
and sell a compact disc packaging system. The Company shall pay such a
corporation annual royalties of 2% of net sales and 25% of other fees, as
defined, plus an initial fee of $30,000. The exclusive provisions of the license
agreement are subject to termination if certain minimum royalty levels are not
obtained or if the Company does not obtain a $1,000,000 cash investment within
24 months of the agreement.
5. PROPOSED PUBLIC OFFERING
In February 1998, a Delaware holding company, International Plastic
Technologies, Inc. ('International') was incorporated for the purpose of
acquiring the stock of the Company and two other affiliated companies in
transactions to be accounted for as a pooling of interests. The acquisitions are
to occur simultaneously with the successful consummation of an initial public
offering of International's common stock.
F-17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet presents the
pro forma financial position of International Plastic Technologies, Inc.
('International') and its subsidiary, Electronic Hardware Corp. ('EHC,' and
together with International, the 'Company') and Compact Disc Packaging Corp.
('CDP') at December 27, 1997 as if the proposed merger of the two companies had
been consummated at such date. Included are adjustments to reflect the
acquisition of CDP by the Company.
The unaudited pro forma consolidated statements of operations for the years
ended December 27, 1997 reflect the combined results of the Company and CDP as
if the transaction summarized in the preceding paragraph had occurred at the
beginning of the first period presented.
The unaudited pro forma consolidated statements of operations do not
necessarily represent actual results that would have been achieved had the
companies been together at the beginning of each respective period, nor are they
necessarily indicative of future results. These unaudited pro forma consolidated
financial statements should be read in conjunction with the companies'
respective historical financial statements and notes thereto.
F-18
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 27, 1997
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------- PRO FORMA ADJUSTMENTS
INTERNATIONAL PLASTIC COMPACT DISC ------------------------
TECHNOLOGIES, INC. PACKAGING CORP. DR CR TOTAL
--------------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.......................... $ 351,740 $ 445 $ 352,185
Accounts receivable (net of
allowance for doubtful
accounts of $14,000)....... 681,471 681,471
Inventory..................... 1,043,011 1,043,011
Prepaid expenses.............. 96,026 96,026
--------------------- --------------- ---------- ---------- ----------
Total current assets............ 2,172,248 445 2,172,693
Property and equipment--net..... 623,215 623,215
Other assets.................... 112,357 112,357
--------------------- --------------- ---------- ---------- ----------
$ 2,907,820 $ 445 $2,908,265
--------------------- --------------- ---------- ---------- ----------
--------------------- --------------- ---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued
expenses................... $ 392,696 $ 325 $ 393,021
Current portion of long term
debt....................... 1,001,181 1,001,181
Current portion of obligations
under capital leases....... 53,315 53,315
--------------------- --------------- ---------- ---------- ----------
Total current liabilities....... 1,447,192 325 1,447,517
--------------------- --------------- ---------- ---------- ----------
Long term debt.................. $ 771,244 $ 132,585 $ 903,829
Fee payable to
officers/shareholder.......... 150,000 150,000
Obligations under capital
leases........................ 88,540 88,540
--------------------- --------------- ---------- ---------- ----------
Total liabilities............... 2,456,976 132,910 2,589,886
--------------------- --------------- ---------- ---------- ----------
Stockholders' equity:
Common Stock--par value .001
authorized issued and
outstanding 1,945,000
shares..................... 1,945 25,000(1) 25,000 1,945
Deficit accumulated during
development stage.......... (157,465) (2)157,465
Paid in capital............... 317,496 (1) 25,000 473,899
(3)131,403
Retained earning (Deficit)...... 131,403 (2)157,465 (157,465)
(3)131,403
--------------------- --------------- ---------- ---------- ----------
Total stockholders' equity...... 450,844 (132,465) 313,868 313,868 318,379
--------------------- --------------- ---------- ---------- ----------
$ 2,907,820 $ 445 313,868 $ 313,868 $2,908,265
--------------------- --------------- ---------- ---------- ----------
--------------------- --------------- ---------- ---------- ----------
</TABLE>
F-19
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 27, 1997
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
INTERNATIONAL PRO-FORMA
PLASTIC COMPACT DISC ----------
TECHNOLOGIES INC. PACKAGING CORP. TOTAL
----------------- --------------- ----------
<S> <C> <C> <C>
Net sales........................................................ $ 6,054,747 $6,054,747
Cost of goods sold............................................... 3,831,599 3,831,599
----------------- --------------- ----------
Gross profit..................................................... 2,223,148 2,223,148
----------------- --------------- ----------
Operating expenses:
Selling and shipping........................................... 472,096 472,096
General and administrative..................................... 1,298,797 89,730 1,388,527
----------------- --------------- ----------
Total operating expenses......................................... 1,770,893 89,730 1,860,623
----------------- --------------- ----------
Income from operations........................................... 452,255 (89,730) 362,525
Interest expense................................................. (206,900) (206,900)
----------------- --------------- ----------
Net income (loss)................................................ 245,355 (89,730) 155,625
Pro-forma income taxes........................................... 98,000 98,000
----------------- --------------- ----------
Pro-forma net income............................................. $ 147,355 $ (89,730) $ 57,625
----------------- --------------- ----------
----------------- --------------- ----------
Pro-forma earnings per share--Basic.............................. $ 0.08 $ $ 0.03
----------------- --------------- ----------
----------------- --------------- ----------
Weighted average common shares used.............................. $ 1,945,000 $ $1,945,000
----------------- --------------- ----------
----------------- --------------- ----------
</TABLE>
F-20
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
INTERNATIONAL PRO-FORMA
PLASTIC COMPACT DISC ----------
TECHNOLOGIES INC. PACKAGING CORP. TOTAL
----------------- --------------- ----------
<S> <C> <C> <C>
Net sales........................................................ $ 5,398,041 $5,398,041
Cost of goods sold............................................... 3,668,420 3,668,420
----------------- --------------- ----------
Gross profit..................................................... 1,729,621 1,729,621
----------------- ----------
Operating expenses:
Selling and shipping........................................... 427,400 427,400
General and administrative..................................... 1,045,038 44,502 1,089,540
----------------- --------------- ----------
Total operating expenses......................................... 1,472,438 44,502 1,516,940
----------------- --------------- ----------
Income from operations........................................... 257,183 (44,502) 212,681
Interest expense................................................. (193,138) (193,138)
----------------- --------------- ----------
Net income (loss)................................................ 64,045 (44,502) 19,543
Pro-forma income taxes........................................... 26,000 26,000
----------------- --------------- ----------
Pro-forma net income (loss)...................................... $ 38,045 $ (44,502) $ (6,457)
----------------- --------------- ----------
----------------- --------------- ----------
Pro-forma earnings per share--Basic.............................. 0.02 --
----------------- --------------- ----------
----------------- --------------- ----------
Weighted average common shares used.............................. 1,945,000 1,945,000
----------------- --------------- ----------
----------------- --------------- ----------
</TABLE>
F-21
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION 1,250,000 SHARES OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE OF COMMON STOCK UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY AND SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY BY ANY PERSON IN ANY 1,250,000 REDEEMABLE
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD COMMON STOCK BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY PURCHASE WARRANTS CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................. 3
Risk Factors.................................... 7
Use of Proceeds................................. 17
Dividend Policy................................. 18
Dilution........................................ 19
Capitalization.................................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 21
Business........................................ 23
Management...................................... 31
Principal Stockholders.......................... 34
Certain Transactions............................ 35
Description of Securities....................... 37
Shares Eligible for Future Sale................. 41
Underwriting.................................... 42
Legal Matters................................... 44
Experts......................................... 44
Additional Information.......................... 44
Index to Financial Statements................... F-1
-----------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
1,250,000 Shares
of Common Stock
and
1,250,000 Redeemable
Common Stock
Purchase Warrants
INTERNATIONAL PLASTIC
TECHNOLOGIES, INC.
------------------------
PROSPECTUS
------------------------
NETWORK 1 FINANCIAL
SECURITIES, INC.
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware. Section 145 of the General Corporation Law of the State of Delaware
empowers a Delaware corporation to indemnify, subject to the standards therein
prescribed, any person in connection with any action, suit or proceeding brought
or threatened by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or was serving as such with
respect to another corporation or other entity at the request of such
corporation.
The Company's Certificate provides that each person who was or is made a
party to (or is threatened to be made a party to) or is otherwise involved in
any civil or criminal action, suit or proceeding by reason of the fact that such
person is or was a director or officer of the Company shall be indemnified and
held harmless by the Company to the fullest extent authorized by Section 145 of
the General Corporation Law of the State of Delaware against all expense,
liability and loss (including without limitation attorneys' fees) incurred by
such person in connection therewith.
Nothing contained in the Company's Certificate shall eliminate or limit the
liability of directors (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
under Section 174 of the General Corporation Law of the State of Delaware; or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Company maintains directors and officers liability insurance covering
all directors and officers of the Company against claims arising out of the
performance of their duties.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration.............................................................. $
NASD Listing Fee..............................................................
Nasdaq Listing Fee............................................................
Transfer Agent Fee............................................................
Printing and Engraving Costs..................................................
Legal Fees and Expenses.......................................................
Accounting Fees and Expenses..................................................
Blue Sky Fees and Expenses....................................................
Miscellaneous.................................................................
------------
Total....................................................................... $
------------
------------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following shares of Common Stock were issued by the Company during the
past three years without registering the securities under the Securities Act.
There were no underwriting discounts or commissions paid in connection with the
issuance of any of the securities set forth below.
The sales of the securities described in the following table were made in
reliance upon Section 4(2) of the Securities Act, which provides certain
exemptions for transactions not involving a public offering. The purchasers of
securities in each transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof. All purchasers of securities in each such
transaction had adequate information concerning the Company.
II-1
<PAGE>
In March 1998, as part of a reorganization, the Company acquired solely in
exchange for Common Stock of the Company, all of the outstanding capital stock
of EHC and CDP. The Company also acquired in March 1998 all of the outstanding
capital stock of DTI for $1,000. Following the reorganization, each of the
following individuals held the amount of shares of the Company's common stock
set forth below:
<TABLE>
<S> <C>
David L. Kassel.................................................................... 700,000
Harry Goodman...................................................................... 500,000
Andrew Franzone.................................................................... 500,000
Robert Gillings.................................................................... 200,000
David Cowan........................................................................ 45,000
</TABLE>
ITEM 27. LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
*1 Form of Underwriting Agreement
2.1 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and CDP
2.2 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and EHC
3.1 Certificate of Incorporation of International Plastic Technologies, Inc.
3.2 By-Laws of International Plastic Technologies, Inc.
*4.1 Form of Common Stock Certificate
*4.2 Form of Warrant Certificate
*4.3 Form of Warrant Agreement between the Company and Continental Stock Transfer and Trust Company
*4.4 Form of Underwriter's Warrant Agreement
5 Opinion of Koerner Silberberg & Weiner, LLP
10.1 Employment Agreement between the Company and Andrew Franzone
10.2 Employment Agreement between the Company and David L. Kassel
10.3 Employment Agreement between the Company and Harry Goodman
10.4 Consulting Agreement between the Company and B.C. China Business, Inc. and Letter Agreement between
the Company and Bao-Wen Chen dated March 1, 1998
*10.5 Consulting Agreement between the Company and Network 1 Financial Securities, Inc.
10.6 Lease Agreement between the Company and K&G Realty Associates dated December 19, 1989, Rider to Lease
Agreement dated January 1, 1990, Letter Agreement between the Company and K&G Realty Associates dated
March 16, 1995 and Rider to Lease Agreement dated March 1, 1998
+10.7 Licensing Agreement between CDP and Inch, Inc.
+10.8 Licensing Agreement between DTI and Dr. Richard Deutsch
10.9 Promissory Notes payable to David L. Kassel dated September 13, 1994, August 1, 1996, December 31,
1997 and Janaury 1, 1998, and Guarantee of CDP Promissory Note dated January 1, 1998 by International
Plastic Technologies, Inc.
10.10 Promissory Notes payable to Harry Goodman dated September 1, 1994 and August 1, 1996
10.11 Demand Grid Note between AFC and Republic National Bank of New York dated December 1, 1997, Term Loan
Agreement Promissory Note between AFC and Republic National Bank of New York dated July 29, 1996 and
Guaranty and Security Agreement by EHC dated July 25, 1996
10.12 Term Loan Agreement between EHC and Republic National Bank of New York dated July 29, 1996 and Term
Loan Agreement Promissory Note dated July 29, 1996
10.13 Demand Grid Note between Republic National Bank of New York and EHC dated July 29, 1996
10.14 Loan Agreement between EHC and Long Island Development Corporation dated February 21, 1997, Loan
Promissory Note dated February 21, 1997 and Security Agreement dated February 21, 1997
10.15 Mortgage between K&G Realty Associates and Long Island Commercial Bank dated November 28, 1995, Rider
to Mortgage dated November 28, 1995, Mortgage Note, Guaranty of Mortgage Note by EHC and Assignment of
Leases and Rent
10.16 Sublease between EHC and MPD dated March 1, 1998
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.17 Collective Bargaining Agreement between EHC and Local 531, International Brotherhood of Teamsters,
AFL-CIO
10.18 Stockholders' Agreement between the Company, Andrew Franzone, David L. Kassel and Harry Goodman
10.19 International Plastic Technologies, Inc., 1998 Stock Option and Grant Plan
10.20 Agreement between AFC and EHC to engineer, manufacture and import products
21 List of Subsidiaries of the Company
*23.1 Consent of Koerner Silberberg & Weiner, LLP (contained in its opinion filed as Exhibit 5 hereto).
23.2 Consent of Feldman, Radin & Co., P.C.
24 Power of Attorney (included on the signature page)
27.1 Financial Data Schedule for International Plastic Technologies, Inc.
27.2 Financial Data Schedule for Compact Disc Packaging Corp.
</TABLE>
- ------------------
* To be filed by amendment.
+ Confidential treatment has been requested as to a portion of this document.
ITEM 28. UNDERTAKINGS
A. Certificates
The undersigned registrant (the 'Registrant') hereby undertakes to provide
to the Underwriter at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
B. Rule 415 Offering
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the Registration Statement and; (iii)
include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
C. Request for Acceleration of Effective Date
The Company may elect to request acceleration of the Effective Date of the
Registration Statement under Rule 461 of the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the Securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such
II-3
<PAGE>
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
D. Rule 430A Offering
(1) For purposes of determinating any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A of the Securities
Act and contained in a form of Prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all requirements of filing on Form SB-2 and authorize this registration
statement to be signed on its behalf by the undersigned, in the City of New
York, State of New York on March 26, 1998.
INTERNATIONAL PLASTIC TECHNOLOGIES,
INC.
By: /s/ Andrew Franzone
_________________________________
Andrew Franzone
Chief Executive Officer and
President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Andrew Franzone his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as full to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or
either of them or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------------- ---------------
<S> <C> <C>
/s/ Andrew Franzone Chief Executive Officer, President and Director March 26, 1998
- ------------------------------------------
Andrew Franzone
/s/ David L. Kassel Chairman of the Board March 26, 1998
- ------------------------------------------
David L. Kassel
/s/ Harry Goodman Vice President and Director March 26, 1998
- ------------------------------------------
Harry Goodman
/s/ Steven Sgammato Chief Financial Officer and Controller March 26, 1998
- ------------------------------------------
Steven Sgammato
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ---------- ------------------------------------------------------------------------------------------- ------
<S> <C> <C>
*1 Form of Underwriting Agreement
2.1 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and
CDP
2.2 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and
EHC
3.1 Certificate of Incorporation of International Plastic Technologies, Inc.
3.2 By-Laws of International Plastic Technologies, Inc.
*4.1 Form of Common Stock Certificate
*4.2 Form of Warrant Certificate
*4.3 Form of Warrant Agreement between the Company and Continental Stock Transfer and Trust
Company
*4.4 Form of Underwriter's Warrant Agreement
5 Opinion of Koerner Silberberg & Weiner, LLP
10.1 Employment Agreement between the Company and Andrew Franzone
10.2 Employment Agreement between the Company and David L. Kassel
10.3 Employment Agreement between the Company and Harry Goodman
10.4 Consulting Agreement between the Company and B.C. China Business, Inc. and Letter Agreement
between the Company and Bao-Wen Chen dated March 1, 1998
*10.5 Consulting Agreement between the Company and Network 1 Financial Securities, Inc.
10.6 Lease Agreement between the Company and K&G Realty Associates dated December 19, 1989,
Rider to Lease Agreement dated January 1, 1990, Letter Agreement between the Company and
K&G Realty Associates dated March 16, 1995 and Rider to Lease Agreement dated March 1, 1998
+10.7 Licensing Agreement between CDP and Inch, Inc.
+10.8 Licensing Agreement between DTI and Dr. Richard Deutsch
10.9 Promissory Notes payable to David L. Kassel dated September 13, 1994, August 1, 1996,
December 31, 1997 and Janaury 1, 1998, and Guarantee of CDP Promissory Note dated January
1, 1998 by International Plastic Technologies, Inc.
10.10 Promissory Notes payable to Harry Goodman dated September 1, 1994 and August 1, 1996
10.11 Demand Grid Note between AFC and Republic National Bank of New York dated December 1, 1997,
Term Loan Agreement Promissory Note between AFC and Republic National Bank of New York
dated July 29, 1996 and Guaranty and Security Agreement by EHC dated July 25, 1996
10.12 Term Loan Agreement between EHC and Republic National Bank of New York dated July 29, 1996
and Term Loan Agreement Promissory Note dated July 29, 1996
10.13 Demand Grid Note between Republic National Bank of New York and EHC dated July 29, 1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ---------- ------------------------------------------------------------------------------------------- ------
<S> <C> <C>
10.14 Loan Agreement between EHC and Long Island Development Corporation dated February 21, 1997,
Loan Promissory Note dated February 21, 1997 and Security Agreement dated February 21, 1997
10.15 Mortgage between K&G Realty Associates and Long Island Commercial Bank dated November 28,
1995, Rider to Mortgage dated November 28, 1995, Mortgage Note, Guaranty of Mortgage Note
by EHC and Assignment of Leases and Rent
10.16 Sublease between EHC and MPD dated March 1, 1998
10.17 Collective Bargaining Agreement between EHC and Local 531, International Brotherhood of
Teamsters, AFL-CIO
10.18 Stockholders' Agreement between the Company, Andrew Franzone, David L. Kassel and Harry
Goodman
10.19 International Plastic Technologies, Inc., 1998 Stock Option and Grant Plan
10.20 Agreement between AFC and EHC to engineer, manufacture and import products
21 List of Subsidiaries of the Company
*23.1 Consent of Koerner Silberberg & Weiner, LLP (contained in its opinion filed as Exhibit 5
hereto).
23.2 Consent of Feldman, Radin & Co., P.C.
24 Power of Attorney (included on the signature page)
27.1 Financial Data Schedule for International Plastic Technologies, Inc.
27.2 Financial Data Schedule for Compact Disc Packaging Corp.
</TABLE>
- ------------------
* To be filed by amendment.
+ Confidential treatment has been requested as to a portion of this document.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of the day immediately
preceding the effective date of the initial public offering of securities of
International Plastic Technologies, Inc. (the "Effective Date"), among
International Plastic Technologies, Inc., a Delaware corporation ("IPT"),
Compact Disc Packaging Corp., a Delaware corporation ("Compact Disc"), and David
Kassel, Robert Gillings and David Cowan (collectively the "Shareholders").
1. PLAN OF REORGANIZATION
Kassel, Gillings and Cowan are the owners of one hundred (100%) percent
of the issued and outstanding shares of stock of Compact Disc, which consists of
five hundred (500) shares of common stock with a par value of $.01 per share. It
is the intention of Kassel, Gillings and Cowan that each of the shareholders
signing at the foot of this agreement (provided such signing shareholders
represent eighty (80%) percent or more of the total shares of Compact Disc)
shall exchange with IPT shares of Compact Disc for common shares of IPT (the
"Reorganization").
2. EXCHANGE OF SHARES
Each of the shareholders signing at the foot of this agreement
(provided such signing shareholders represent eighty (80%) percent or more of
the voting shares of Compact Disc) shall exchange with IPT shares of Compact
Disc for common shares of IPT. The following number of shares of IPT will, on
the closing date, as hereinafter defined, be delivered to the individual
Shareholders in exchange for their Compact Disc shares as set forth below:
Shareholder No. of Shares of No. of Shares of IPT
Compact Disc to be Issued
Kassel 225 200,000
Gillings 225 200,000
Cowan 50 45,000
<PAGE>
Such shares shall be issued in certificates of such denominations, amounts, and
names as may be requested by the respective Shareholders. The Shareholders
represent and warrant that they will hold such common shares of IPT for
investment purpose only.
3. DELIVERY OF SHARES
On the closing date, the Shareholders will deliver certificates for the
shares of Compact Disc duly endorsed so as to make IPT the sole owner thereof,
free and clear of all claims and encumbrances; and on such closing date,
delivery of the common shares of IPT, on which documentary stamp taxes will have
been paid by IPT, will be made to the Shareholders as above set forth.
4. CLOSING
The closing of the reorganization shall take place at the offices of
Koerner Silberberg & Weiner, LLP, 112 Madison Avenue, New York, New York 10016
on the Effective Date (the "Closing").
5. REPRESENTATIONS OF SHAREHOLDERS
The Shareholders represent and warrant as follows:
(a) As of the closing date they will be the sole owners of the shares
appearing of record in their names; such shares will be free from claims, liens,
or other encumbrances; and they will have the unqualified right to transfer such
shares.
(b) The shares constitute validly issued shares of Compact Disc, fully
paid and nonassessable.
(c) As of the closing date, Compact Disc will be in good standing as a
Delaware corporation.
(d) The Shareholders represent and warrant (i) that the shares to be
acquired pursuant to this Agreement will be acquired for his or her own account
and not with a view to, or present intention of, distribution thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"), and
will not be disposed of in contravention of the Securities Act or this
2
<PAGE>
Agreement; (ii) that he or she is able to bear the economic risk of an
investment in the shares for an indefinite period of time inasmuch as the shares
have not been registered under the Securities Act and, therefore, cannot be sold
unless subsequently registered under the Securities Act or an exemption from
such registration is available; and (iii) that he or she has had an opportunity
to ask questions and receive answers concerning the terms and conditions of the
offering of the shares and has had full access to such other information
concerning IPT and its subsidiaries as he or she has requested.
6. REPRESENTATIONS OF ACQUIRING CORPORATION
IPT represents and warrants as follows:
(a) As of the closing date, the IPT shares to be delivered to the
Shareholders will constitute the valid and legally issued shares of IPT, fully
paid and nonassessable, and will be legally equivalent in all respects to the
common share of stock of IPT issued and outstanding as of the date of the
closing.
(b) The officers of IPT are duly authorized to execute this agreement.
(c) There are no substantial liabilities, either fixed or contingent of
IPT other than contracts or obligations in the usual course of business; and no
such contracts or obligations in the usual course of business are liens or other
liabilities which, if disclosed, would alter substantially the financial
condition of IPT as of the closing date.
(d) IPT is not involved in any pending litigation or governmental
investigation or proceeding.
(e) As of the closing date, IPT will be in good standing as a Delaware
corporation.
(f) The shares of Compact Disc are being acquired by IPT as an
investment, and there is no present intention on the part of IPT to dispose of
such shares.
7. PROHIBITED ACTS
Compact Disc agrees not to do any of the following things prior to the
closing date, and the Shareholders agree that prior to the closing date they
will not request or permit Compact Disc to do any of the following things:
3
<PAGE>
(a) Declare or pay any dividends or other distributions on its
stock or purchase or redeem any of its shares;
(b) Issue any shares or other securities, including any right
or option to purchase or otherwise acquire any of its shares, or issue any notes
or other evidences of indebtedness not in the usual course of business;
8. DELIVERY OF RECORDS
The Shareholders agree that on or before the closing date they will
cause to be delivered to IPT such corporate records or other documents of
Compact Disc as IPT may request.
9. INVESTIGATIONS; SURVIVAL OF WARRANTIES
The respective representations and warranties of Compact Disc and IPT
contained herein or in any certificates or other documents delivered prior to or
at the Closing shall not be deemed waived or otherwise affected by any
investigation made by any party to the agreement. Each and every such
representation and warranty shall expire and be terminated and extinguished on
the first anniversary of the Reorganization.
10. NOTICES
All notices and other communications shall be in writing and shall be
deemed given if delivered personally or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice; provided that
notices of a change of address shall be effective only upon receipt thereof):
(a) if to IPT to:
International Plastic Technologies, Inc.
320 Broadhollow Road
Farmingdale, New York 11735
4
<PAGE>
with a copy to:
Koerner Silberberg & Weiner, LLP
112 Madison Avenue, 3rd Floor
New York, New York 10016
(b) if to Compact Disc to:
Compact Disc Packaging
320 Broadhollow Road
Farmingdale, New York 11735
(c) if to Kassel to:
David Kassel
145 West 67th Street, Apt. 40D
New York, New York 10023
(d) if to Gillings to;
Robert Gillings
7423 Ridge Boulevard
Brooklyn, New York 11209
(e) if to Cowan to:
David Cowan
553 8th Street, Apt. 3L
Brooklyn, New York 11215
12. ASSIGNMENT; PARTIES IN INTEREST
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties. This Agreement is
not intended to confer upon any other person except the parties any rights or
remedies hereunder.
5
<PAGE>
13. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of law) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
14. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
15. INTERPRETATION
The article and section headings contained in this Agreement are solely
for the purpose of reference, are not part of the agreement of the parties and
shall not in any way affect the meaning or interpretation of this Agreement.
16. ENTIRE AGREEMENT
This Agreement, including the documents and instruments referred to
herein, embodies the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
6
<PAGE>
IN WITNESS WHEREOF, Compact Disc, IPT and the Shareholders have caused
this agreement to be signed by their respective duly authorized officers as of
the date first above written.
Compact Disc Packaging Corp.
By: /s/ David L. Kassel
-------------------------------
David Kassel, President
International Plastic Technologies, Inc.
By: /s/ Andrew Franzone
-------------------------------
Andrew Franzone, President
/s/ David L. Kassel
------------------------------------
David Kassel
/s/ Robert Gillings
------------------------------------
Robert Gillings
/s/ David Cowan
------------------------------------
David Cowan
7
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of the day immediately
preceding the effective date of the initial public offering of securities of
International Plastic Technologies, Inc. (the "Effective Date"), among
International Plastic Technologies, Inc., a Delaware corporation ("IPT"),
Electronic Hardware Corp., a New York corporation ("Electronic Hardware"), and
David Kassel, Harry Goodman and Andrew Franzone (collectively the
"Shareholders").
1. PLAN OF REORGANIZATION
Kassel, Goodman and Franzone are the owners of one hundred (100%)
percent of the issued and outstanding shares of stock of Electronic Hardware,
which consists of three (3) shares of common stock with no par value. It is the
intention of Kassel, Goodman and Franzone that each of the shareholders signing
at the foot of this agreement (provided such signing shareholders represent
eighty (80%) percent or more of the total shares of Electronic Hardware) shall
exchange with IPT shares of Electronic Hardware for common shares of IPT (the
"Reorganization").
2. EXCHANGE OF SHARES
Each of the shareholders signing at the foot of this agreement
(provided such signing shareholders represent eighty (80%) percent or more of
the voting shares of Electronic Hardware) shall exchange with IPT shares of
Electronic Hardware for common shares of IPT. The following number of shares of
IPT will, on the closing date, as hereinafter defined, be delivered to the
individual Shareholders in exchange for their Electronic Hardware shares as set
forth below:
Shareholder No. of Shares of No. of Shares of IPT
Electronic Hardware to be Issued
Kassel 1 500,000
Goodman 1 500,000
Franzone 1 500,000
<PAGE>
Such shares shall be issued in certificates of such denominations, amounts, and
names as may be requested by the respective Shareholders. The Shareholders
represent and warrant that they will hold such common shares of IPT for
investment purpose only.
3. DELIVERY OF SHARES
On the closing date, the Shareholders will deliver certificates for the
shares of Electronic Hardware duly endorsed so as to make IPT the sole owner
thereof, free and clear of all claims and encumbrances; and on such closing
date, delivery of the common shares of IPT, on which documentary stamp taxes
will have been paid by IPT, will be made to the Shareholders as above set forth.
4. CLOSING
The closing of the reorganization shall take place at the offices of
Koerner Silberberg & Weiner, LLP, 112 Madison Avenue, New York, New York 10016
on the Effective Date (the "Closing").
5. REPRESENTATIONS OF SHAREHOLDERS
The Shareholders represent and warrant as follows:
(a) As of the closing date they will be the sole owners of the shares
appearing of record in their names; such shares will be free from claims, liens,
or other encumbrances; and they will have the unqualified right to transfer such
shares.
(b) The shares constitute validly issued shares of Electronic Hardware,
fully paid and nonassessable.
(c) As of the closing date, Electronic Hardware will be in good
standing as a New York corporation.
(d) The Shareholders represent and warrant (i) that the shares to be
acquired pursuant to this Agreement will be acquired for his or her own account
and not with a view to, or present intention of, distribution thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"), and
will not be disposed of in contravention of the Securities Act or this
2
<PAGE>
Agreement; (ii) that he or she is able to bear the economic risk of an
investment in the shares for an indefinite period of time inasmuch as the shares
have not been registered under the Securities Act and, therefore, cannot be sold
unless subsequently registered under the Securities Act or an exemption from
such registration is available; and (iii) that he or she has had an opportunity
to ask questions and receive answers concerning the terms and conditions of the
offering of the shares and has had full access to such other information
concerning IPT and its subsidiaries as he or she has requested.
6. REPRESENTATIONS OF ACQUIRING CORPORATION
IPT represents and warrants as follows:
(a) As of the closing date, the IPT shares to be delivered to the
Shareholders will constitute the valid and legally issued shares of IPT, fully
paid and nonassessable, and will be legally equivalent in all respects to the
common share of stock of IPT issued and outstanding as of the date of the
closing.
(b) The officers of IPT are duly authorized to execute this agreement.
(c) There are no substantial liabilities, either fixed or contingent of
IPT other than contracts or obligations in the usual course of business; and no
such contracts or obligations in the usual course of business are liens or other
liabilities which, if disclosed, would alter substantially the financial
condition of IPT as of the closing date.
(d) IPT is not involved in any pending litigation or governmental
investigation or proceeding.
(e) As of the closing date, IPT will be in good standing as a Delaware
corporation.
(f) The shares of Electronic Hardware are being acquired by IPT as an
investment, and there is no present intention on the part of IPT to dispose of
such shares.
7. PROHIBITED ACTS
Electronic Hardware agrees not to do any of the following things prior
to the closing date, and the Shareholders agree that prior to the closing date
they will not request or permit Electronic Hardware to do any of the following
things:
3
<PAGE>
(a) Declare or pay any dividends or other distributions
on its stock or purchase or redeem any of its shares;
(b) Issue any shares or other securities, including any
right or option to purchase or otherwise acquire any of its shares, or issue any
notes or other evidences of indebtedness not in the usual course of business;
8. DELIVERY OF RECORDS
The Shareholders agree that on or before the closing date they will
cause to be delivered to IPT such corporate records or other documents of
Electronic Hardware as IPT may request.
9. INVESTIGATIONS; SURVIVAL OF WARRANTIES
The respective representations and warranties of Electronic Hardware
and IPT contained herein or in any certificates or other documents delivered
prior to or at the Closing shall not be deemed waived or otherwise affected by
any investigation made by any party to the agreement. Each and every such
representation and warranty shall expire and be terminated and extinguished on
the first anniversary of the Reorganization.
10. NOTICES
All notices and other communications shall be in writing and shall be
deemed given if delivered personally or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice; provided that
notices of a change of address shall be effective only upon receipt thereof):
(a) if to IPT to:
International Plastic Technologies, Inc.
320 Broadhollow Road
Farmingdale, New York 11735
4
<PAGE>
with a copy to:
Koerner Silberberg & Weiner, LLP
112 Madison Avenue, 3rd Floor
New York, New York 10016
(b) if to Electronic Hardware to:
Electronic Hardware Corp.
320 Broadhollow Road
Farmingdale, New York 11735
(c) if to Kassel to:
David Kassel
145 West 67th Street, Apt. 40D
New York, New York 10023
(d) if to Goodman to;
Harry Goodman
24 Ardsley Place
Rockville Centre, New York 11570
(e) if to Franzone to:
Andrew Franzone
Box 651, Strathmore Street
Remsenburg, New York 11906
12. ASSIGNMENT; PARTIES IN INTEREST
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties. This Agreement is
not intended to confer upon any other person except the parties any rights or
remedies hereunder.
5
<PAGE>
13. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of law) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
14. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
15. INTERPRETATION
The article and section headings contained in this Agreement are solely
for the purpose of reference, are not part of the agreement of the parties and
shall not in any way affect the meaning or interpretation of this Agreement.
16. ENTIRE AGREEMENT
This Agreement, including the documents and instruments referred to
herein, embodies the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
6
<PAGE>
IN WITNESS WHEREOF, Electronic Hardware, IPT and the Shareholders have
caused this agreement to be signed by their respective duly authorized officers
as of the date first above written.
Electronic Hardware Corp.
By: /s/ Andrew Franzone
--------------------------
Andrew Franzone, President
International Plastic Technologies, Inc.
By: /s/ Andrew Franzone
----------------------------
Andrew Franzone, President
/s/ David L. Kassel
----------------------------
David Kassel
/s/ Harry Goodman
----------------------------
Harry Goodman
/s/ Andrew Franzone
----------------------------
Andrew Franzone
7
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:00 PM 03/04/1998
981084156 - 2867176
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
The undersigned, being of legal age, in order to form a corporation
under and pursuant to the laws of the State of Delaware, do hereby set forth as
follows:
FIRST: The name of the Corporation is:
International Plastic Technologies, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware and the name of the registered agent at such
address are as follows: National Corporate Research, Ltd., 9
East Loockerman Street, City of Dover, County of Kent, Delaware
19901.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law
of Delaware (the "DGCL").
FOURTH:
Capitalization.
(a) The aggregate number of shares that the Corporation shall
have the authority to issue is 11,000,000 shares of capital
stock of which: (i) 10,000,000 shares shall be of a class of
voting common stock, par value $.001 per share (the "Common
Stock"); and (ii) 1,000,000 shares shall be of a class of
Preferred Stock, par value $.001 per share (the "Preferred
Stock"), for which the Board of Directors (the "Board") is
authorized hereby, subject to the limitations prescribed by law
and the provisions of this Article, to provide for the issuance
of shares of Preferred Stock in series, and by filing a
certificate pursuant to the DGCL to establish from time to time
the number of shares to be included in each such series, and to
fix the designation, powers, preferences and rights of the
shares of each such series of Preferred Stock and the
qualifications, limitations or restrictions thereof. The
authority of the Board with respect to each series of Preferred
Stock, not heretofore designated, shall include, but not be
limited to, determination of the following:
(i) the number of shares constituting that series (which may be
1
<PAGE>
increased or decreased by the Board) and the distinctive
designation of that series (provided that the aggregate number
of shares constituting all series of Preferred Stock shall not
exceed 1,000,000);
(ii) the dividend rate on the shares of that series,
whether dividends shall be cumulative, and if so, from which
date or dates, and the relative rights of priority, if any, of
payment of dividends on shares of that series;
(iii) whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the
terms of such voting rights;
(iv) whether that series shall have conversion
privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the conversion
rate in such events as the Board shall determine;
(v) whether or not the shares of that series shall be
redeemable, and if so, the terms and conditions of such
redemption, including the date or dates upon or after which they
shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption dates;
(vi) whether that series shall have sinking fund for
redemption or purchase of shares of that series, and, if so, the
terms and amount of such sinking fund;
(vii) the rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, and the relative
rights of priority, if any, of payment of shares of that series;
and
(viii) any other relative rights, powers, preferences,
qualifications, limitations or restrictions relating to such
series which may be authorized under the DGCL.
FIFTH: The name and address of the incorporator are as follows:
Name Address
---- -------
John F. Storz Koerner Silberberg & Weiner
112 Madison Avenue, 3rd Floor
New York, New York 10016
SIXTH: The following provisions are inserted for the management
of the
2
<PAGE>
business and for the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the
powers of the Corporation and its directors and stockholders:
(1) The number of directors of the corporation shall be such
as from time to time shall be fixed by, or in the manner
provided in the by-laws. Election of directors need not
be by ballot unless the by-laws so provide.
(2) The Board of Directors shall have power without the
assent or vote of the Stockholders:
(a) To make, alter, amend, change, add to or repeal
the ByLaws of the Corporation; to fix and vary
the amount to be reserved for any proper
purpose; to authorize and cause to be executed
mortgages and liens upon all or any part of the
property of the Corporation; to determine the
use and disposition of any surplus or net
profits; and to fix the times for the
declaration and payment of dividends.
(b) To determine from time to time whether, and to
what times and places, and under what conditions
the accounts and books of the Corporation (other
than the stock ledger) or any of them, shall be
open to the inspection of the stockholders.
(3) The directors in their discretion may submit any
contract or act for approval or ratification at any
annual meeting of the stockholders or at any meeting of
the stockholders called for the purpose of considering
any such act or contract, and any contract or act that
shall be approved or be ratified by the vote of the
holders of a majority of the stock of the Corporation
which is represented in person or by proxy at such
meeting and entitled to vote thereat (provided that a
lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and as binding
upon the Corporation and upon all the stockholders as
though it had been approved or ratified by every
stockholder of the Corporation, whether or not the
contract of act would otherwise be open to legal attack
because of directors' interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore
or by statute expressly conferred upon them, the
directors are hereby
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empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the
Corporation; subject, nevertheless, to the provisions of
the statutes of Delaware, of this certificate, and to
any by-laws from time to time made by the stockholders;
provided, however, that no by-laws so made shall
invalidate any prior act of the directors which would
have been valid if such by-laws had not been made.
SEVENTH: A director of this Corporation shall not be
personally liable to the Corporation shall not be
personally liable to the Corporation or its
stockholders for damages for any breach of duty in
his/her capacity as a director, provided that such
provision shall not eliminate or limit the liability of
a director: (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders; (ii)
for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the DGCL; or (iv)
for any transaction from which the director derived an
improper personal benefit.
EIGHTH: The Corporation shall, to the fullest extent
permitted by the DGCL (including, without limitation,
Section 145 thereof), as the same may be amended and
supplemented from time to time, indemnify any and all
persons whom it shall have power to indemnify under the
DGCL. The indemnification provided for herein shall not
be deemed exclusive of any other rights to which those
seeking indemnification may be entitled whether as a
matter of law, under any By-law of the Corporation, by
agreement, by vote of stockholders or disinterested
directors of the Corporation or otherwise.
NINTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class
of them and/or between this Corporation and its
stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware,
may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof
or on the application of any receiver or receivers
appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation
under the provisions of Section 279 Title 8 of the
Delaware Code order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court
directs. If a majority in number representing
three-fourths (3/4) in value of the creditors or class
of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any
reorganization of this corporation as consequence of
such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if
sanctioned by the court to which the said application
has
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been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be,
and also on this Corporation.
IN WITNESS WHEREOF, I, the undersigned, being the
incorporator hereinabove named, for the purpose of forming a corporation
pursuant to the DGCL, do make and file this Certificate, hereby declaring
and certifying that the facts herein stated are true under penalty of
perjury, and accordingly have hereunto set my hand this 4th day of March,
1998.
/s/ John F. Storz
-----------------------------
John F. Storz, Incorporator
STATE OF NEW YORK )
SS.:
COUNTY OF NEW YORK )
BE IT REMEMBERED that on the 4th day of March, 1998 personally
appeared before me, Maryann Peronti, a notary public for the State of New
York, John F. Storz, the party to the foregoing Certificate of
Incorporation, known to me personally to be such, and acknowledged the
said Certificate of his act and deed and that the facts therein stated
are true.
GIVEN under my hand and seal of office the day and year
aforesaid.
/s/ Maryann Peronti
---------------------
Notary Public
MARYANN PERONTI
Notary Public, State of New York
No. 31-4923738
Qualified in New York County
Commission Expires Feb. 16, 2000
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BY-LAWS
OF
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
ARTICLE I
Offices
The registered office of International Plastic Technologies, Inc.
(the "Corporation") shall be in the City of Dover, County of Kent, State of
Delaware. The Corporation also may have offices at such other places, within or
without the State of Delaware, as the Board of Directors (the "Board")
determines from time to time or the business of the Corporation requires. Until
such time as the Board otherwise determines, the Corporation shall also have an
office in the Town of Farmingdale, County of Nassau and State of New York.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. Except as otherwise provided in these
By-Laws, all meetings of the stockholders shall be held on such dates and at
such times and places, within or without the State of Delaware, as shall be
determined by the Board and as shall be stated in the notice of the meeting or
in waivers of notice thereof. If the place of any meeting is not so fixed, it
shall be held at the registered office of the Corporation in the State of
Delaware.
Section 2. Annual Meetings. The annual meeting of stockholders for
the election of directors and the transaction of such other proper business as
may be brought before the meeting shall be held on such date after the close of
the Corporation's fiscal year, and at such time, as the Board may from time to
time determine.
Section 3. Special Meetings. Special meetings of stockholders, for any
purpose or
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purposes, may be called by the Chairman of the Board or by the Chairman of the
Board upon the request of at least 50% of the members of the Board.
Section 4. Notice of Meetings. Except as otherwise required by law,
whenever the stockholders are required or permitted to take any action at a
meeting, written notice thereof shall be given, stating the place, date and time
of the meeting and, unless it is the annual meeting, by or at whose direction it
is being issued. The notice also shall designate the place where the
stockholders' list is available for examination, unless the list is kept at the
place where the meeting is to be held. Notice of a special meeting also shall
state the purpose or purposes for which the meeting is called. A copy of the
notice of any meeting shall be delivered personally or shall be mailed, not less
than ten (10) or more than sixty (60) days before the date of the meeting, to
each stockholder of record entitled to vote at the meeting. If mailed, the
notice shall be given when deposited in the United States mail, postage prepaid,
and shall be directed to each stockholder at his or her address as it appears on
the record of stockholders of the Corporation, or to such other address which
such stockholder may have filed by written request with the Secretary of the
Corporation. Notice of any meeting of stockholders shall be deemed waived by any
stockholder who attends the meeting, except when the stockholder attends the
meeting for the express purpose of objecting at the beginning thereof to the
transaction of any business because the meeting is not lawfully called or
convened, or by any stockholder who submits, either before or after the meeting,
a signed waiver of notice. Unless the Board, after the adjournment of a meeting,
shall fix a new record date for the adjourned meeting or unless the adjournment
is for more than thirty (30) days, notice of an adjourned meeting need not be
given if the place, date and time to which the meeting shall be adjourned are
announced at the meeting at which the adjournment is taken.
Section 5. Quorum. Except as otherwise provided by law or, by the
Certificate of Incorporation of the Corporation, at all meetings of
stockholders, the holders of a majority of the outstanding shares of the
Corporation entitled to vote at the meeting shall be present in person or
represented by proxy in order to constitute a quorum for the transaction of
business.
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Section 6. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, at all meetings of the
stockholders, every stockholder of record having the right to vote thereat shall
be entitled to one vote for every share of stock standing in his or her name as
of the record date and entitling him or her to so vote. A stockholder may vote
in person or by proxy. Except as otherwise provided by law or by the Certificate
of Incorporation of the Corporation, any corporate action to be taken by a vote
of the stockholders, other than the election of directors, shall be authorized
by not less than a majority of the votes cast at a meeting by the stockholders
present in person or by proxy and entitled to vote thereon. Directors shall be
elected as provided in Section 3 of Article III of these By-Laws. Written
ballots shall not be required for voting on any matter unless ordered by the
Secretary of the meeting.
Section 7. Proxies. Every proxy shall be executed in writing by the
stockholder or by his or her attorney-in-fact, or otherwise as provided in the
General Corporation Law of the State of Delaware (the "General Corporation
Law").
Section 8. List of Stockholders. At least ten (10) days before
every meeting of stockholders, a list of the stockholders (including their
addresses) entitled to vote at the meeting and their record holdings as of the
record date shall be open for examination by any stockholder, for any purpose
germane to the meeting, during ordinary business hours, at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held, The list also shall be kept at and throughout the meeting, and
may be inspected by any stockholder who is present.
Section 9. Conduct of Meetings. At each meeting of the stockholders,
the Chairman of the Board or, in his or her absence, a director chosen by a
majority of the directors then in office shall act as chairman of the meeting.
The Secretary or, in his or her absence, any person appointed by the chairman of
the meeting shall act as secretary of the meeting and shall keep the minutes
thereof. Except as otherwise provided by law, at any annual or special meeting
of
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stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. Such business must have either been: (A) brought
before the meeting at the direction of the chairman of the meeting; or (B)
specified in a written notice given by or on behalf of a stockholder of record
on the record date for such meeting entitled to vote thereat or a duly
authorized proxy for such stockholder; provided, that the following actions, as
described below, are taken. A notice must be delivered personally to, or mailed
to and received at, the principal executive office of the Corporation, addressed
to the attention of the Secretary, not less than sixty (60) days nor more than
ninety (90) days prior to the meeting; provided, however, that in the event that
less than seventy (70) days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual or special
meeting was mailed or such public disclosure was made, whichever first occurs.
Such notice shall set forth: (i) a description of each such item of business
proposed to be brought before the meeting and the reasons for conducting such
business at such meeting; (ii) the name and address of the person proposing to
bring such business before the meeting; (iii) the class and number of shares
held of record, held beneficially and represented by proxy by such person as of
the record date for the meeting (if such date has then been made publicly
available) and as of the date of such notice; and (iv) any material interest of
the stockholder in such item of business. No business shall be brought before
any meeting of stockholders of the Corporation otherwise than as provided in
this Section 9. The chairman of the meeting may, if the facts warrant, determine
that a stockholder proposal was not made in accordance with the foregoing
procedure, and if he or she should so determine, he or she shall so declare to
the meeting and the defective proposal shall be disregarded.
Section 10. Written Consent to Action in Lieu of a Meeting.
Stockholders may take such action by written consent as shall be permitted by
section 228 of the General Corporation Law provided, however, that if at any
time a class of stock of the Corporation becomes registered pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations of The Securities and Exchange Commission and such stock is
being traded on a
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nationally recognized exchange, any action to be taken at any annual or special
meeting of stockholders must be taken at a meeting.
ARTICLE III
Board
Section 1. Number of Board Members. The business, property and affairs
of the Corporation shall be managed under the direction of the Board, which
shall consist of five directors. Directors need not be stockholders of the
Corporation. The number of directors may be reduced or increased from time to
time by action of a majority of the entire Board, but no decrease may shorten
the term of an incumbent director. When used in these By-Laws, the phrase
"entire Board" means the total number of directors which the Corporation would
have if there were no vacancies.
Section 2. Nomination. Only persons who are nominated in accordance
with the procedures set forth in these By-Laws shall be eligible to serve as
directors of the Corporation. Nominations of persons for election to the Board
of the Corporation may be made at a meeting of stockholders (a) by or at the
direction of the Board or (b) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section 2, who shall be entitled to vote for the election of directors at the
meeting and who complies with the notice procedures set forth in this Section 2.
Such nominations, other than those made by or at the direction of the Board,
shall be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the meeting;
provided, however, that in the event that less than seventy (70) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice the date of meeting or such public disclosure was made. Such
stockholder's notice shall set forth (x) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act; and (y) as to the stockholder
giving the notice (A) the name and address, as they appear on the Corporation's
books, of such stockholder and (B) the class and number of shares of the
Corporation which are beneficially owned by such stockholder. At the request of
the Board, any person nominated by the Board for election as a director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the By-Laws, and if he or she should so determine, he or she shall
so declare to the
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meeting and the defective nomination shall be disregarded. Notwithstanding the
foregoing provisions of this Section 2, a stockholder shall also comply with all
applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section.
Section 3. Election and Term. Except as otherwise provided by law, by
the Certificate of Incorporation of the Corporation or by these By-Laws, the
directors shall be elected at the annual meeting of the stockholders and the
persons receiving a plurality of the votes cast shall be so elected. Subject to
a director's earlier death, resignation or removal as provided in Sections 4 and
5 of this Article III, each director shall hold office until his or her
successor shall have been duly elected and shall have qualified.
Section 4. Removal. A director may be removed at any time, only for
cause, and only by the vote of the holders of two thirds of the outstanding
shares of the Corporation entitled to vote at an election of directors.
Section 5. Resignations. Any director may resign at any time by
giving written notice of his or her resignation to the Corporation. A
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein immediately upon its
receipt, and, unless otherwise specified therein, the acceptance of a
resignation shall not be necessary to make it effective.
Section 6. Vacancies. Except as otherwise provided by the
Certificate of Incorporation of the Corporation, any vacancy in the Board
arising from an increase in the number of directors or otherwise shall be filled
only by the vote of a majority of the directors then in office. Subject to his
or her earlier death, removal or resignation as provided in Sections 4 and 5 of
this Article III, each director so elected shall hold office until his successor
shall have been duly elected and shall have qualified.
Section 7. Place of Meetings. Except as otherwise provided in these
By-Laws, all meetings of the Board shall be held at such places, within or
without the State of Delaware, as the Board determines from time to time.
Section 8. Annual Meeting. The annual meeting of the Board shall be
held either (a) without notice immediately after the annual meeting of
stockholders and in the same place, or (b) as soon as practicable after the
annual meeting of stockholders on such date and at such time and place as the
Board determines.
Section 9. Regular Meetings. Regular meetings of the Board shall be
held on such dates and at such places and times as the Board determines. Notice
of regular meetings need not be given, except as otherwise required by law.
Section 10. Special Meetings. Special meetings of the Board may be
called by the
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Chairman of the Board and shall be called by the Chairman of the Board or the
Secretary upon the written request of not less than a majority of directors. The
request shall state the date, time, place and purpose or purposes of the
proposed meeting.
Section 11. Notice of Meetings. Notice of each special meeting of the
Board (and of each annual meeting held pursuant to subdivision (b) of Section 8
of this Article III) shall be given, not later than 24 hours before the meeting
is scheduled to commence, by the Chairman of the Board or the secretary and
shall state the place, date and time of the meeting. Notice of each meeting may
be delivered to a director by hand or given to a director orally (whether by
telephone or in person) or mailed or telecopied to a director at his or her
residence or usual place of business, provided, however, that if notice of less
than 72 hours is given it may not be mailed. If mailed, the notice shall be
deemed to have been given when deposited in the United States mail, postage
prepaid, and if telecopied, the notice shall be deemed to have been given when
oral confirmation of receipt is given. Notice of any meeting need not be given
to any director who shall submit, either before or after the meeting, a signed
waiver of notice or who shall attend the meeting, except if such director shall
attend for the express purpose of objecting at the beginning thereof to the
transaction of any business because the meeting is not lawfully called or
convened. Notice of any adjourned meeting, including the place, date and time of
the new meeting, shall be given to all directors not present at the time of the
adjournment, as well as to the other directors unless the place, date and time
of the new meeting is announced at the adjourned meeting.
Section 12. Quorum. Except as otherwise provided by law or these
By-Laws, at all meetings of the Board a majority of the entire Board shall
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board. A majority of the directors present, whether or not a quorum
is present, may adjourn any meeting to another place, date and time.
Section 13. Conduct of Meetings. At each meeting of the Board, the
secretary of the Board or, in his or her absence, a director chosen by a
majority of the directors present shall act as secretary of the meeting. The
secretary or, in his or her absence, any person appointed by the secretary of
the meeting shall act as secretary of the meeting and keep the minutes thereof.
The order of business at all meetings of the Board shall be as determined by the
secretary of the meeting.
Section 14. Committees of the Board. The Board, by resolution adopted
by a majority of the entire Board, may designate an audit committee,
compensation committee, executive committee and other committees, each
consisting of one (1) or more directors. Each committee (including the members
thereof) shall serve at the pleasure of the Board and shall keep minutes of its
meetings and report the same to the Board. The Board may designate one or more
directors as alternate members of any committee. Alternate members may replace
any absent or disqualified member or members at any meeting of a committee.
Except as limited by law, each committee, to the extent provided in the
resolution establishing it, shall have and may exercise all
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the powers and authority of the Board with respect to all matters.
Section 15. Operation of Committees. A majority of all of the
members of a committee shall constitute a quorum for the transaction of
business, and the vote of a majority of all the members of a committee present
at a meeting at which a quorum is present shall be the act of the committee.
Each committee shall adopt whatever other rules of procedure it determines for
the conduct of its activities.
Section 16. Written Consent to Action in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board or of any
committee may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 17. Meetings Held Other Than in Person. Members of the
Board or any committee may participate in a meeting of the Board or committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and such participation shall constitute presence in
person at the meeting.
ARTICLE IV
Officers
Section 1. Executive Officers Etc.. The executive officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary and a
Treasurer. The Board also may elect or appoint one or more Vice Presidents (any
of whom may be designated as Executive Vice Presidents, Senior Vice Presidents
or otherwise), and any other officers it deems necessary or desirable for the
conduct of the business of the Corporation, each of whom shall have such powers
and duties as the Board determines.
Section 2. Duties.
(a) The Chairman of the Board. The Chairman of the Board shall
be a member of the Board. The Chairman of the Board of Directors shall preside
at all meetings of the stockholders and the Board.
(b) The President. The President shall perform, in the absence
or disability of the Chairman of the Board, the duties and exercise the powers
of the Chairman of the Board and shall have such other powers and duties as the
Board or the Chairman of the Board assigns to him or to her.
(c) The Vice President. The Vice President or, if there shall
be more than one, the Vice Presidents, if any, in the order of their seniority
or in any other order determined by
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the Board, shall perform, in the absence or disability of the President, the
duties and exercise the powers of the President and shall have such other powers
and duties as the Board or the President assigns to him or to her or to them.
(d) The Secretary. Except as otherwise provided in these
By-Laws or as directed by the Board, the Secretary shall attend all meetings of
the stockholders and the Board; shall record the minutes of all proceedings in
books to be kept for that purpose; shall give notice of all meetings of the
stockholders. and special meetings of the Board; and shall keep in safe custody
the seal of the Corporation and, when authorized by the Board, shall affix the
same to any corporate instrument. The Secretary shall have such other powers and
duties as the Board or the Chairman of the Board assigns to him or her.
(e) The Treasurer. Subject to the control of the Board,
the Treasurer shall have the care and custody of the corporate funds and the
books relating thereto; shall perform all other duties incident to the office of
treasurer; and shall have such other powers and duties as the Board or Chairman
of the Board assigns to him or her.
Section 3. Election; Removal. Subject to his or her earlier death,
resignation or removal, as hereinafter provided, each officer shall hold his or
her office until his or her successor shall have been duly elected and shall
have qualified. Any officer may be removed at any time with or without cause by
the Board.
Section 4. Resignations. Any officer may resign at any time by giving
written notice of his resignation to the Corporation. A resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 5. Vacancies. If an office becomes vacant for any reason, the
Board or the stockholders may fill the vacancy, and each officer so elected
shall serve for the remainder of his or her predecessor's term and until his
successor shall have been elected or appointed and shall have qualified.
ARTICLE V
Provisions Relating to Stock Certificates and Stockholders
Section 1. Certificates. Certificates for the Corporation's capital
stock shall be in such form as required by law and as approved by the Board.
Each certificate shall be signed in the name of the Corporation by the
Secretary, or the Chairman of the Board or President or any Vice President and
by the Secretary, the Treasurer or any Assistant Secretary or any Assistant
Treasurer and shall bear the seal of the Corporation or a facsimile thereof. If
any certificate is countersigned by a transfer agent or registered by a
registrar, other than the Corporation or its
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employees, the signature of any officer of the Corporation may be a facsimile
signature. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature as placed on any certificate shall have
ceased to be such officer, transfer agent or registrar before the certificate
shall be issued, it may nevertheless be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of the issue.
Section 2. Lost Certificates, etc. The Corporation may issue a
new certificate for shares in place of any certificate theretofore issued by it,
alleged to have been lost, mutilated, stolen or destroyed, and the Board may
require the owner of the lost, mutilated, stolen or destroyed certificate, or
his or her legal representatives, to make an affidavit of that fact and to give
the Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation on account of the alleged loss,
mutilation, theft or destruction of the certificate or the issuance of a new
Certificate.
Section 3. Transfers of Shares. Transfers of shares shall be
registered on the books of the Corporation maintained for that purpose after due
presentation of the stock certificates therefor appropriately endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
Section 4. Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or for the purpose of determining stockholders entitled
to receive payment of any dividend or other distribution or the allotment of any
rights, or for the purpose of any other action, the Board may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board, and which record date shall not be more
than sixty (60) nor less than ten (10) days before the date of any such meeting
and shall not be more than sixty (60) days prior to any other action.
ARTICLE VI
Indemnification
Section 1. Indemnification. The Corporation shall, to the fullest
extent permitted by the General Corporation Law (including, without limitation,
Section 145 thereof) or other provisions of the laws of Delaware relating to
indemnification of directors, officers, employees and agents, as the same may be
amended and supplemented from time to time, indemnify any and all such persons
whom it shall have power to indemnify under the General Corporation Law or such
other provisions of law.
Section 2. Statutory Indemnification. Without limiting the generality
of Section 1 of this Article VI, to the fullest extent permitted, and subject to
the conditions imposed, by law, and pursuant to Section 145 of the General
Corporation Law unless otherwise determined by the Board of Directors:
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(i) the Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against reasonable expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
(ii) the Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against reasonable expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, except as
otherwise provided by law.
Section 3. Indemnification by Resolution of Stockholders or Directors
of Agreement. To the fullest extent permitted by law, indemnification may be
granted, and expenses may be advanced, to the persons described in Section 145
of the General Corporation Law or other provisions of the laws of Delaware
relating to indemnification and advancement of expenses, as from time to time
may be in effect, by (i) a resolution of stockholders, (ii) a resolution of the
Board, or (iii) an agreement providing for such indemnification and advancement
of expenses; provided that no indemnification may be made to or on behalf of any
person if a judgment or other final adjudication adverse to the person
establishes that such person's acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that such person personally gained in fact a financial
profit or other advantage to which such person was not legally entitled.
Section 4. General. It is the intent of this Article VI to require the
Corporation to indemnify the persons referred to herein for judgments, fines,
penalties, amounts paid in settlement and expenses (including attorneys' fees),
and to advance expenses to such persons, in each and every circumstance in which
such indemnification and such advancement of expenses could lawfully be
permitted by express provision of By-Laws, and the indemnification and expense
advancement provided by this Article VI shall not be limited by the absence of
an express recital of such circumstances. The indemnification and advancement of
expenses provided by, or granted pursuant to, these By-Laws shall not be deemed
exclusive of any other
11
<PAGE>
rights to which a person seeking indemnification or advancement of expenses may
be entitled, whether as a matter of law, under any provision of the Certificate
of Incorporation of the Corporation or these By-Laws, by agreement, by vote of
stockholders or disinterested directors of the Corporation or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
Section 5. Indemnification Benefits. Indemnification pursuant to these
By-Laws shall inure to the benefit of the heirs executors, administrators and
personal representatives of those entitled to indemnification.
ARTICLE VII
General Provisions
Section 1. Dividends Etc. To the extent permitted by law, the Board
shall have full power and discretion, subject to the provisions of the
Certificate of Incorporation of the Corporation and the terms of any other
corporate document or instrument binding upon the Corporation, to determine
what, if any, dividends or distributions shall be declared and paid or made.
Section 2. Seal. The Corporation's seal shall be in such form as is
required by law and as shall be approved by the Board.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board.
Section 4. Voting Shares in Other Corporations. Unless otherwise
directed by the Board, shares in other corporations which are held by the
Corporation shall be represented and voted only by the Chairman of the Board or
by a proxy or proxies appointed by him or her.
ARTICLE VIII
Amendment
By-Laws may be made, altered or repealed by the Board, subject to the
right of stockholders to alter or repeal any By-Laws made by the Board.
12
<PAGE>
March 25, 1997
International Plastic Technologies, Inc.
320 Broad Hollow Road
Farmingdale, New York 11735
Re: Registration Statement on Form SB-2 for 1,250,000
shares of common stock, par value $0.01 per share,
and 1,250,000 warrants, of International Plastic
Technologies, Inc.
Gentlemen:
We have acted as counsel to International Plastic
Technologies, Inc., a Delaware corporation (the "Company"), in connection with
the preparation of the Registration Statement on Form SB-2 (the "Registration
Statement") which has been filed by the Company on the date hereof with the
Securities and Exchange Commission (the "Commission"), relating to the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of 1,250,000 shares of common stock, par value $0.001 per share (the
"Common Stock") and 1,250,000 redeemable common stock purchase warrants (the
"Warrants") (collectively the "Securities"), to be offered in connection with
the offering described in the Prospectus (the "Prospectus"), which forms a part
of the Registration Statement.
The Registration Statement has been filed in connection with
(i) 1,250,000 shares of Common Stock; (ii) 1,250,000 Warrants; (iii) 1,250,000
shares of common stock issuable upon exercise of the Warrants; (iv) 187,500
shares of common stock which may be purchased pursuant to an over-allotment
option; (v) 187,500 warrants which may be purchased pursuant to the
over-allotment option; (vi) 187,500 shares of common stock issuable upon
exercise of the warrants which may be purchased pursuant to the over-allotment
option; (vii) 125,000 shares of common stock issuable upon exercise of
Underwriter's Warrants (the "Underwriter's Warrants"); (viii) 125,000 warrants
issuable upon exercise of the Underwriter's Warrants; and (ix) 125,000 shares of
common stock issuable upon exercise of the warrants underlying the Underwriter's
Warrants.
The Common Stock and Warrants are described in the Prospectus
which forms a part of the Registration Statement, to which this opinion is an
exhibit.
<PAGE>
International Plastic Technologies, Inc.
March 25, 1998
Page 2
In our capacity as counsel to the Company, we have examined
the Certificate of Incorporation and the By-laws of the Company, records of the
Company's corporate proceedings, the Registration Statement as filed with the
Commission and such other certificates, records and documents as we have deemed
necessary for the purpose of this opinion.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons signing or delivering any
instrument, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies, the authenticity of the originals of such latter
documents and the due authorization and valid execution and delivery of all
documents. As to any facts material to this opinion, we have relied upon
statements and representations of officers and other representatives of the
Company, its subsidiaries and others.
Based on the foregoing, and having regard for such legal
considerations as we deem relevant, we are of the opinion that the Securities
have been duly authorized and when issued pursuant to and in connection with the
Registration Statement, will be validly issued and will be binding obligations
upon the Company.
We express no opinion on the laws of any jurisdiction other
than the General Corporation Law of the State of Delaware and the State of New
York.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. We also consent to the reference to this firm
under the heading "Legal Matters" in the Prospectus which forms a part of the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
KOERNER SILBERBERG & WEINER, LLP
By: /s/ Koerner Silberberg & Weiner, LLP
------------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement dated as of March 15, 1998 by and between
International Plastic Technologies, Inc. (the "Company"), a Delaware
corporation, and Andrew Franzone (the "Employee").
WHEREAS, the Employee is employed as President and Chief Executive
Officer of the Company; and
WHEREAS, the Employee's services have contributed to the growth of the
Company; and
WHEREAS, the Company desires to continue to employ and retain the
experience, ability and services of the Employee and to prevent any other
competitive business from securing his services to utilize his experience,
background and know-how; and
WHEREAS, the Board of Directors recognizes that these arrangements are
being made to help assure a continuing dedication by the Employee to his duties
to the Company; and
WHEREAS, the Board of Directors wishes to demonstrate to the employees
of the Company that the Company is concerned with the welfare of its employees
and intends to ensure that loyal employees are treated fairly;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and for other good and valuable consideration, each of the parties,
intending to be legally bound, hereby agree to the following terms and
conditions.
1. Term. The Company hereby employs the Employee, and the Employee
hereby accepts such employment, for a term commencing as of the date of this
Agreement and ending on the earlier of (i) February 28, 2008, or (ii) the date
of termination of the Employee's Employment pursuant to the provisions of
Section 4 or 5 (said period hereinafter referred to as the "Term").
2. Duties. The Employee shall serve in the capacity of President and
Chief Executive Officer of the Company (or such other and comparable titles and
positions as shall be given to the Employee by the Board of Directors of the
Company), it being understood that such duties shall be reasonably comparable to
those duties heretofore performed by the Employee for the Company. The Employee
shall devote substantially all of his business time and effort to the
performance of his duties hereunder, except for illness or incapacity.
3. Compensation and Benefits.
3.1 Salary. During the Term of this Agreement, the Company
shall pay the Employee an annual salary (the "Annual Salary"), calculated as
follows: (i) One Hundred Twenty Five Thousand Dollars ($125,000), payable in
accordance with the Company's regular
<PAGE>
payroll schedule, less such deductions as shall be required to be withheld by
law; plus (ii) an annual salary increase in an amount equivalent to the greater
of five percent (5%) or the increase in the Consumer Price Index (as defined
below). To compute the annual increase attributable to the Consumer Price Index,
the Consumer Price Index as of January, 1998 shall be compared with the Consumer
Price Index for each successive January of the Term. Any increase so calculated
shall be applied to the Annual Salary and shall be payable beginning January of
each year of the Term. For purposes of this Section, the Consumer Price Index
shall mean the Consumer Price Index for All Urban Consumers, All-Items, for New
York-Northeast New Jersey-Long Island, NY-NJ-CT (1982-84=100) published by the
United States Bureau of Labor Statistics, Department of Labor, or its successor
then in effect. If publication of the Consumer Price Index is discontinued, the
parties hereto shall accept comparable statistics on the cost of living
adjustment for New York City as computed and published by an agency of the
United States or by a responsible financial periodical or recognized authority
to be selected by the parties.
3.2 Bonus. During the Term, the Employee may receive an annual
bonus in an amount as shall be determined by the Board of Directors of the
Company.
3.3 Benefits. During the Term, the Employer shall provide and
the Employee may participate (to the extent that the Employee is eligible under
the terms of such plans or programs) in the following:
(a) family medical insurance coverage (with "family"
defined as spouse and all dependent children, under
the age 21);
(b) life and disability insurance; and
(c) all other incentive programs available to executive
officers of the Company.
3.4 Automobile. During the Term, the Employer shall provide
the Employee with an automobile to the same extent and in accordance with the
policy for executive officers of the Company. The automobile shall be comparable
in quality to that which the Company presently provides to the Employee. The
Company shall also pay all insurance, maintenance, fuel, repairs, registration
fees and other operating costs. The maximum amount paid by the Company pursuant
to this Section 3.4 shall be $1,000 per month.
3.5 Expenses. The Company shall pay or reimburse the Employee
for all reasonable and properly documented out-of-pocket expenses actually
incurred or paid by the Employee during the Term in the performance of the
Employee's services under this Agreement.
-2-
<PAGE>
4. Termination Due to Death, Disability, Voluntary Resignation or
Termination Without Cause.
4.1 Termination Due to Death. If the Employee dies during the
Term, this Agreement shall terminate as of the date of the Employee's death and
the Employee's estate or beneficiaries shall be entitled to receive any salary,
bonus and other benefits earned and accrued prior to the date of death together
with reimbursement for any out-of-pocket expenses incurred prior to the date of
death. The Employee's estate or beneficiaries shall also be entitled to receive
payments equivalent to the Employee's Annual Salary for a period of three (3)
years following the date of death.
4.2 Termination Due to Disability. If the Employee is unable
to competently perform the duties assigned to him because of ill health or other
disability, for a period in excess of one hundred twenty (120) consecutive or
non-consecutive days out of any twelve (12) month period, the Company may, at
its option, terminate the employment of the Employee immediately by written
notice to the Employee. The Employee shall be entitled to receive any salary,
bonus and other benefits earned and accrued together with reimbursement for any
out-of-pocket expenses incurred, for the period prior to the notice of
termination. The Employee shall also be entitled to receive for a period of
three (3) years following the date of the Company's notice of termination, the
Employee's Annual Salary and all other benefits provided to executive officers,
with the exception of those benefits provided pursuant to Sections 3.2 and 3.5
hereof.
4.3 Termination Due to Voluntary Resignation. If the Employee
voluntarily resigns from the Company (in which case such resignation shall be
effective on the date the Employee provides the Company with notice of such
resignation), the Employee shall be entitled to receive any salary, bonus or
other benefits earned and accrued prior to the date of resignation, together
with reimbursement for any out-of-pocket expenses incurred prior to the date of
resignation.
4.4 Termination Without Cause. The Company may terminate the
Employee at any time for any reason other than those specified in Section 5
hereof, effective thirty (30) days after written notice is given to the Employee
of such termination; provided, however, that the Employee shall be entitled to
receive for a the remainder of the Term as defined in subsection (i) of Section1
following the date of the Company's notice of termination, the Employee's Annual
Salary and all other benefits provided to executive officers, with the exception
of those benefits provided pursuant to Sections 3.2 and 3.5 hereof. The Employee
shall not be obligated to perform any services for the Company during such
period.
5. Termination for Cause. If the Employee: (i) is convicted of a felony
or any crime involving the Company or its subsidiaries (except where such felony
or crime derives from actions taken at the direction of the Board of Directors
of the Company in writing); or (ii) is determined by the Board of Directors of
the Company to have engaged in: (a) willful misconduct (as hereinafter defined);
(b) willful or gross neglect; (c) fraud; (d) misappropriation; (e) embezzlement;
(f) material breach of his fiduciary duty; or (g) conduct in wanton disregard of
-3-
<PAGE>
corporate policy in the performance of his duties hereunder, the Company may
terminate the Employee's employment immediately, at any time within thirty (30)
days after receiving notice of the occurrence of any of the events described in
clauses (i) and (ii) above, by written notice to the Employee. In the event of
termination under this Section 5, the Employee shall have the right to receive
compensation and other benefits hereunder on and after the date of the
termination up until the arbitration proceedings have been concluded pursuant to
Section 8.4. As used in this Agreement, the term "willful misconduct" shall mean
willful failure of the Employee to perform his duties.
6. Covenant of the Employee.
6.1 Covenant Against Competition. The Employee acknowledges that:
(i) the principal business of the Company and its subsidiaries is the design,
marketing and manufacture of injection molded plastic products and assemblies
(the "Present Business"); (ii) the Company and its subsidiaries is one of a
limited number of entities within its industry which have developed the present
business; (iii) the Present Business is national in scope; (iv) the Employee's
work for the Company and its subsidiaries has given and will continue to give
him access to the confidential affairs and proprietary information of the
Company and its subsidiaries not readily available to the public; and (v) the
agreements and covenants of the Employee contained in this Section 6.1 are
essential to the business and goodwill of the Company. Accordingly, the Employee
covenants that:
(a) Throughout the Employee's employment with the Company and
for a period of two (2) years following the date that the Employee is given
notice of termination from the Company (in the case of termination for
disability, termination without cause or termination with cause) or for a period
of two (2) years following the date that the Employee resigns from the Company
(the "Restricted Period"), the Employee shall not, in the United States of
America, directly or indirectly: (1) engage in the Present Business or any other
principal line of business developed by the Company during the Term (hereinafter
collectively referred to as the "Company Business") for the Employee's own
account; (2) render any services in any capacity to any person or entity (other
than the Company or its subsidiaries) engaged in the Company Business; or (3)
become interested in any entity engaged in the Company Business (other than the
Company or its subsidiaries) as a partner, shareholder, principal, agent,
trustee, consultant or in any other relationship or capacity; provided, however,
the Employee may own, directly or indirectly, solely as an investment,
securities of any such entity which are traded on any national securities
exchange or NASDAQ if the Employee: (A) is not a controlling person of, or a
member of a group which controls such entity and (B) does not, directly or
indirectly, own ten percent (10%) or more of any class of securities of such
entity.
(b) During the Restricted Period, the Employee shall keep
secret and retain in strictest confidence, and shall not use for his benefit or
the benefit of others, except in connection with the business and affairs of the
Company and its subsidiaries, all confidential matters relating to the Company
Business and to the Company and its subsidiaries learned by the Employee
heretofore or hereafter, directly or indirectly, from the Company and its
subsidiaries, including
-4-
<PAGE>
any information concerning the business, affairs, customers, clients, sources of
supply and customer lists of the Company or its subsidiaries (the "Confidential
Company Information") and shall not disclose the Confidential Company
Information to anyone except with the Company's express written consent and
except for Confidential Company Information which: (1) is publicly known at the
time of receipt, or thereafter becomes publicly known through no wrongful act of
the Employee, or (2) is received from a third party who is not under an
obligation to keep such information confidential. The rights of the Company
pursuant to this Section are in addition to and shall not be deemed to limit
those rights and remedies available under common law for protection of the type
of confidential information which constitutes "trade secrets" as defined by
controlling law.
(c) The Employee shall not, without the Company's prior
written consent, directly or indirectly, knowingly solicit or encourage to leave
the employment of the Company or its subsidiaries, any employee of the Company
or its subsidiaries nor shall the Employee hire any employee who has left the
employment of the Company or its subsidiaries within one (1) year of the
termination of such Employee's employment with the Company or its subsidiaries.
(d) All memoranda, notes, lists, records and other documents
(and all copies thereof) constituting Confidential Company Information made or
compiled by the Employee or made available to the Employee concerning the
Company Business or the Company or its subsidiaries shall be the Company's
property, shall be kept confidential in accordance with the provisions of this
Section and shall be delivered to the Company at any time upon request.
6.2 Rights and Remedies Upon Breach. If the Employee breaches,
or threatens to commit a breach of any of the provisions of Section 6.1 (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies (upon compliance with any necessary prerequisites imposed by law for
the availability of such remedies), each of the rights and remedies being
independent of the other and severally enforceable, and all of the rights and
remedies being in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity:
(a) The right and remedy to have the Restrictive Covenants
specifically enforced by any court having equity jurisdiction, including,
without limitation, the right to have restraining orders and injunctions
(preliminary, mandatory, temporary and permanent) entered against the Employee
preventing violations of such covenants, threatened or actual, and whether or
not then continuing, it being acknowledged and agreed that any such breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company;
(b) The right and remedy to require the Employee to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits derived or received by him primarily as the result
of any transactions constituting a breach of the Restrictive Covenants. The
Employee shall promptly account for and pay over such sums to the Company.
-5-
<PAGE>
The Company may set-off any amounts due to the Company under this Section
against any amounts owed to the Employee.
7. Indemnification. The Company shall indemnify, defend and hold the
Employee harmless from any losses, liabilities, claims, damages, costs,
attorneys fees and expenses as may result from the Employee's actions that were
either taken within the scope of the Employee's duty or authorized in writing by
the Board of Directors of the Company. The Company shall have the right to
settle and/or compromise any such claims on behalf of the Employee. The Employee
shall cooperate with and assist the Company in any litigation or settlements
involving any claims which are the subject of this provision.
8. Other Provisions.
8.1 Severability. The Employee acknowledges and agrees that:
(i) he has had an opportunity to seek the advice of counsel in connection with
this Agreement; (ii) the Restrictive Covenants herein are reasonable in
geographical and temporal scope and in all other respects; and (iii) the Company
would not have entered into this Agreement but for the Restrictive Covenants
contained in this Agreement. If it is determined that any of the provisions of
this Agreement, including, without limitation, any of the Restrictive Covenants,
or any part thereof, is invalid or unenforceable, the remainder of the
provisions of this Agreement shall not thereby be affected and shall be given
full effect, without regard to the invalid portions.
8.2 Blue-Penciling. If any court determines that any of the
covenants contained in this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is unenforceable because of duration
or geographical scope, the said duration or scope of such provision, as the case
may be, shall be reduced so that such provision becomes enforceable and, in its
reduced form, such provision shall then be deemed enforceable and shall be
enforced.
8.3 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by express mail or by certified or registered mail, (return receipt requested
and postage prepaid). Any such notice shall be deemed complete when so delivered
personally, or if mailed, five (5) days after the date of deposit with the
United States Postal Service, as follows:
(i) If to the Company, to:
Koerner Silberberg & Weiner, LLP
112 Madison Avenue, 3rd Floor
New York, New York 10016
Attention: Carl Seldin Koerner, Esq.
-6-
<PAGE>
(ii) If to the Employee, to:
Andrew Franzone
4 Strathmore Street
Remsenburg, New York 11906
Any party may, by notice given in accordance with this Section to the
other parties hereto, designate another recipient or address for receipt of
notices hereunder.
8.4 Arbitration. Any controversy or claim arising out of, or
relating to this Agreement, or its breach, shall be settled by arbitration in
accordance with the then governing rules of the American Arbitration Association
in the City of New York. Judgement upon the award rendered may be entered and
enforced in any court of competent jurisdiction.
8.5 Entire Agreement. This Agreement supersedes all previous
written or oral understandings and agreements between the Company and the
Employee and contains the entire agreement between the parties with respect to
the subject matter hereof.
8.6 Waivers and Amendments. This Agreement and any of the
terms contained herein may not be amended, superseded, canceled, renewed,
extended or waived, unless by a written instrument signed by the parties or, in
the case of a waiver, by the party waiving compliance. No delay on the part of
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege, preclude any other or further exercise thereof or the
exercise of any other such right, power or privilege. The failure of either
party to insist upon performance of any terms or conditions of the Agreement
shall not be construed a waiver of future performance of any such term, covenant
or condition, and the obligations of either party with respect thereto shall
continue in full force and effect.
8.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
8.8 Assignment. This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee. Any purported
assignment by the Employee in violation hereof shall be null and void. In the
event of any sale, transfer or other disposition of all or substantially all of
the Company's assets or business, whether by merger, consolidation or otherwise,
the Company must assign this Agreement and the other party to said transaction
must consent to and honor the assignment or the Company must pay the remainder
of the present value of the Agreement with interest at 6% per annum.
8.9 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, its successors and assigns, including
without limitation any person, partnership, company or corporation which may
acquire substantially all of the Company's assets or business, or with or into
which the Company may be liquidated, consolidated, merged or
-7-
<PAGE>
otherwise combined. This Agreement shall also inure to the benefit of, and shall
be binding upon the Employee, his heirs, distributees and personal
representatives.
8.10 Headings. The headings in this Agreement are for
reference only and shall not affect the interpretation of this Agreement.
8.11 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have signed their names
as of the day and year first above written.
International Plastic Technologies, Inc.
By: /s/ David L. Kassel
-------------------------------
David L. Kassel, Chairman
/s/ Andrew Franzone
---------------------------
Andrew Franzone
-8-
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement dated as of March 15, 1998 by and between
International Plastic Technologies, Inc. (the "Company"), a Delaware
corporation, and David L. Kassel (the "Employee").
WHEREAS, the Employee is employed as Chairman of the Board of the
Company; and
WHEREAS, the Employee's services have contributed to the growth of the
Company; and
WHEREAS, the Company desires to continue to employ and retain the
experience, ability and services of the Employee and to prevent any other
competitive business from securing his services to utilize his experience,
background and know-how; and
WHEREAS, the Board of Directors recognizes that these arrangements are
being made to help assure a continuing dedication by the Employee to his duties
to the Company; and
WHEREAS, the Board of Directors wishes to demonstrate to the employees
of the Company that the Company is concerned with the welfare of its employees
and intends to ensure that loyal employees are treated fairly;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and for other good and valuable consideration, each of the parties,
intending to be legally bound, hereby agree to the following terms and
conditions.
1. Term. The Company hereby employs the Employee, and the
Employee hereby accepts such employment, for a term commencing as of the date of
this Agreement and ending on the earlier of (i) February 28, 2008, or (ii) the
date of termination of the Employee's Employment pursuant to the provisions of
Section 4 or 5 (said period hereinafter referred to as the "Term").
2. Duties. The Employee shall serve in the capacity of Chairman
of the Board of the Company (or such other and comparable titles and positions
as shall be given to the Employee by the Board of Directors of the Company), it
being understood that such duties shall be reasonably comparable to those duties
heretofore performed by the Employee for the Company. However, Employee shall
not be (i) obligated to perform such services at any specific location or during
any specified time, or (ii) except as restricted in Article 6 hereof, restricted
from performing similar services for other business enterprises.
3. Compensation and Benefits.
3.1 Salary. During the Term of this Agreement, the Company
shall pay the Employee an annual salary (the "Annual Salary"), calculated as
follows: (i) One Hundred Thousand Dollars ($100,000), payable in accordance with
the Company's regular payroll schedule, less such deductions as shall be
required to be withheld by law; plus (ii) an annual salary increase in an amount
equivalent to the greater of five percent (5%) or the increase in the Consumer
Price Index (as defined below). To compute the annual increase attributable to
the
<PAGE>
Consumer Price Index, the Consumer Price Index as of January, 1998 shall be
compared with the Consumer Price Index for each successive January of the Term.
Any increase so calculated shall be applied to the Annual Salary and shall be
payable beginning January of each year of the Term. For purposes of this
Section, the Consumer Price Index shall mean the Consumer Price Index for All
Urban Consumers, All-Items, for New York-Northeast New Jersey-Long Island,
NY-NJ-CT (1982-84=100) published by the United States Bureau of Labor
Statistics, Department of Labor, or its successor then in effect. If publication
of the Consumer Price Index is discontinued, the parties hereto shall accept
comparable statistics on the cost of living adjustment for New York City as
computed and published by an agency of the United States or by a responsible
financial periodical or recognized authority to be selected by the parties.
3.2 Bonus. During the Term, the Employee may receive an annual
bonus in an amount as shall be determined by the Board of Directors of the
Company.
3.3 Benefits. During the Term, the Employer shall provide and
the Employee may participate (to the extent that the Employee is eligible under
the terms of such plans or programs) in the following:
(a) family medical insurance coverage (with "family"
defined as spouse and all dependent children, under
the age 21);
(b) life and disability insurance; and
(c) all other incentive programs available to executive
officers of the Company.
3.4 Automobile. During the Term, the Employer shall provide
the Employee with an automobile to the same extent and in accordance with the
policy for executive officers of the Company. The automobile shall be comparable
in quality to that which the Company presently provides to the Employee. The
Company shall also pay all insurance, maintenance, fuel, repairs, registration
fees and other operating costs. The maximum amount paid by the Company pursuant
to this Section 3.4 shall be $1,000 per month.
3.5 Expenses. The Company shall pay or reimburse the Employee
for all reasonable and properly documented out-of-pocket expenses actually
incurred or paid by the Employee during the Term in the performance of the
Employee's services under this Agreement.
4. Termination Due to Death, Disability, Voluntary Resignation or
Termination Without Cause.
4.1 Termination Due to Death. If the Employee dies
during the Term, this Agreement shall terminate as of the date of the Employee's
death and the Employee's estate or beneficiaries shall be entitled to receive
any salary, bonus and other benefits earned and accrued prior to the date of
death together with reimbursement for any out-of-pocket expenses incurred
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<PAGE>
prior to the date of death. The Employee's estate or beneficiaries shall also be
entitled to receive payments equivalent to the Employee's Annual Salary for a
period of three (3) years following the date of death.
4.2 Termination Due to Disability. If the Employee is unable
to competently perform the duties assigned to him because of ill health or other
disability, for a period in excess of one hundred twenty (120) consecutive or
non-consecutive days out of any twelve (12) month period, the Company may, at
its option, terminate the employment of the Employee immediately by written
notice to the Employee. The Employee shall be entitled to receive any salary,
bonus and other benefits earned and accrued together with reimbursement for any
out-of-pocket expenses incurred, for the period prior to the notice of
termination. The Employee shall also be entitled to receive for a period of
three (3) years following the date of the Company's notice of termination, the
Employee's Annual Salary and all other benefits provided to executive officers,
with the exception of those benefits provided pursuant to Sections 3.2 and 3.5
hereof.
4.3 Termination Due to Voluntary Resignation. If the Employee
voluntarily resigns from the Company (in which case such resignation shall be
effective on the date the Employee provides the Company with notice of such
resignation), the Employee shall be entitled to receive any salary, bonus or
other benefits earned and accrued prior to the date of resignation, together
with reimbursement for any out-of-pocket expenses incurred prior to the date of
resignation.
4.4 Termination Without Cause. The Company may terminate the
Employee at any time for any reason other than those specified in Section 5
hereof, effective thirty (30) days after written notice is given to the Employee
of such termination; provided, however, that the Employee shall be entitled to
receive for the remainder of the Term as defined in subsection (i) of Section 1
following the date of the Company's notice of termination, the Employee's Annual
Salary and all other benefits provided to executive officers, with the exception
of those benefits provided pursuant to Sections 3.2 and 3.5 hereof. The Employee
shall not be obligated to perform any services for the Company during such
period.
5. Termination for Cause. If the Employee: (i) is convicted of a felony
or any crime involving the Company or its subsidiaries (except where such felony
or crime derives from actions taken at the direction of the Board of Directors
of the Company in writing); or (ii) is determined by the Board of Directors of
the Company to have engaged in: (a) willful misconduct (as hereinafter defined);
(b) willful or gross neglect; (c) fraud; (d) misappropriation; (e) embezzlement;
(f) material breach of his fiduciary duty; or (g) conduct in wanton disregard of
corporate policy in the performance of his duties hereunder, the Company may
terminate the Employee's employment immediately, at any time within thirty (30)
days after receiving notice of the occurrence of any of the events described in
clauses (i) and (ii) above, by written notice to the Employee. In the event of
termination under this Section 5, the Employee shall have the right to receive
compensation and other benefits hereunder on and after the date of the
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termination up until the arbitration proceedings have been concluded pursuant to
Section 8.4. As used in this Agreement, the term "willful misconduct" shall mean
willful failure of the Employee to perform his duties.
6. Covenant of the Employee.
6.1 Covenant Against Competition. The Employee acknowledges
that: (i) the principal business of the Company and its subsidiaries is the
design, marketing and manufacture of injection molded plastic products and
assemblies (the "Present Business"); (ii) the Company and its subsidiaries is
one of a limited number of entities within its industry which have developed the
present business; (iii) the Present Business is national in scope; (iv) the
Employee's work for the Company and its subsidiaries has given and will continue
to give him access to the confidential affairs and proprietary information of
the Company and its subsidiaries not readily available to the public; and (v)
the agreements and covenants of the Employee contained in this Section 6.1 are
essential to the business and goodwill of the Company.
Accordingly, the Employee covenants that:
(a) Throughout the Employee's employment with the Company and
for a period of two (2) years following the date that the Employee is given
notice of termination from the Company (in the case of termination for
disability, termination without cause or termination with cause) or for a period
of two (2) years following the date that the Employee resigns from the Company
(the "Restricted Period"), the Employee shall not, in the United States of
America, directly or indirectly: (1) engage in the Present Business or any other
principal line of business developed by the Company during the Term (hereinafter
collectively referred to as the "Company Business") for the Employee's own
account; (2) render any services in any capacity to any person or entity (other
than the Company or its subsidiaries) engaged in the Company Business; or (3)
become interested in any entity engaged in the Company Business (other than the
Company or its subsidiaries) as a partner, shareholder, principal, agent,
trustee, consultant or in any other relationship or capacity; provided, however,
the Employee may own, directly or indirectly, solely as an investment,
securities of any such entity which are traded on any national securities
exchange or NASDAQ if the Employee: (A) is not a controlling person of, or a
member of a group which controls such entity and (B) does not, directly or
indirectly, own ten percent (10%) or more of any class of securities of such
entity.
(b) During the Restricted Period, the Employee shall keep
secret and retain in strictest confidence, and shall not use for his benefit or
the benefit of others, except in connection with the business and affairs of the
Company and its subsidiaries, all confidential matters relating to the Company
Business and to the Company and its subsidiaries learned by the Employee
heretofore or hereafter, directly or indirectly, from the Company and its
subsidiaries, including any information concerning the business, affairs,
customers, clients, sources of supply and customer lists of the Company or its
subsidiaries (the "Confidential Company Information") and shall not disclose the
Confidential Company Information to anyone except with the Company's express
written consent and except for Confidential Company Information which: (1) is
publicly known at the time of receipt, or thereafter becomes publicly known
through no wrongful act of
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the Employee, or (2) is received from a third party who is not under an
obligation to keep such information confidential. The rights of the Company
pursuant to this Section are in addition to and shall not be deemed to limit
those rights and remedies available under common law for protection of the type
of confidential information which constitutes "trade secrets" as defined by
controlling law.
(c) The Employee shall not, without the Company's prior
written consent, directly or indirectly, knowingly solicit or encourage to leave
the employment of the Company or its subsidiaries, any employee of the Company
or its subsidiaries nor shall the Employee hire any employee who has left the
employment of the Company or its subsidiaries within one (1) year of the
termination of such Employee's employment with the Company or its subsidiaries.
(d) All memoranda, notes, lists, records and other documents
(and all copies thereof) constituting Confidential Company Information made or
compiled by the Employee or made available to the Employee concerning the
Company Business or the Company or its subsidiaries shall be the Company's
property, shall be kept confidential in accordance with the provisions of this
Section and shall be delivered to the Company at any time upon request.
6.2 Rights and Remedies Upon Breach. If the Employee breaches,
or threatens to commit a breach of any of the provisions of Section 6.1 (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies (upon compliance with any necessary prerequisites imposed by law for
the availability of such remedies), each of the rights and remedies being
independent of the other and severally enforceable, and all of the rights and
remedies being in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity:
(a) The right and remedy to have the Restrictive Covenants
specifically enforced by any court having equity jurisdiction, including,
without limitation, the right to have restraining orders and injunctions
(preliminary, mandatory, temporary and permanent) entered against the Employee
preventing violations of such covenants, threatened or actual, and whether or
not then continuing, it being acknowledged and agreed that any such breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company;
(b) The right and remedy to require the Employee to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits derived or received by him primarily as the result
of any transactions constituting a breach of the Restrictive Covenants. The
Employee shall promptly account for and pay over such sums to the Company. The
Company may set-off any amounts due to the Company under this Section against
any amounts owed to the Employee.
7. Indemnification. The Company shall indemnify, defend and hold the
Employee harmless from any losses, liabilities, claims, damages, costs,
attorneys fees and expenses as may
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result from the Employee's actions that were either taken within the scope of
the Employee's duty or authorized in writing by the Board of Directors of the
Company. The Company shall have the right to settle and/or compromise any such
claims on behalf of the Employee. The Employee shall cooperate with and assist
the Company in any litigation or settlements involving any claims which are the
subject of this provision.
8. Other Provisions.
8.1 Severability. The Employee acknowledges and agrees that:
(i) he has had an opportunity to seek the advice of counsel in connection with
this Agreement; (ii) the Restrictive Covenants herein are reasonable in
geographical and temporal scope and in all other respects; and (iii) the Company
would not have entered into this Agreement but for the Restrictive Covenants
contained in this Agreement. If it is determined that any of the provisions of
this Agreement, including, without limitation, any of the Restrictive Covenants,
or any part thereof, is invalid or unenforceable, the remainder of the
provisions of this Agreement shall not thereby be affected and shall be given
full effect, without regard to the invalid portions.
8.2 Blue-Penciling. If any court determines that any of the
covenants contained in this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is unenforceable because of duration
or geographical scope, the said duration or scope of such provision, as the case
may be, shall be reduced so that such provision becomes enforceable and, in its
reduced form, such provision shall then be deemed enforceable and shall be
enforced.
8.3 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by express mail or by certified or registered mail, (return receipt requested
and postage prepaid). Any such notice shall be deemed complete when so delivered
personally, or if mailed, five (5) days after the date of deposit with the
United States Postal Service, as follows:
(i) If to the Company, to:
Koerner Silberberg & Weiner, LLP
112 Madison Avenue, 3rd Floor
New York, New York 10016
Attention: Carl Seldin Koerner, Esq.
(ii) If to the Employee, to:
David L. Kassel
145 West 67th Street, Apt. 40D
New York, New York 10023
Any party may, by notice given in accordance with this Section to the
other parties hereto, designate another recipient or address for receipt of
notices hereunder.
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<PAGE>
8.4 Arbitration. Any controversy or claim arising out of, or
relating to this Agreement, or its breach, shall be settled by arbitration in
accordance with the then governing rules of the American Arbitration Association
in the City of New York. Judgement upon the award rendered may be entered and
enforced in any court of competent jurisdiction.
8.5 Entire Agreement. This Agreement supersedes all previous
written or oral understandings and agreements between the Company and the
Employee and contains the entire agreement between the parties with respect to
the subject matter hereof.
8.6 Waivers and Amendments. This Agreement and any of the
terms contained herein may not be amended, superseded, canceled, renewed,
extended or waived, unless by a written instrument signed by the parties or, in
the case of a waiver, by the party waiving compliance. No delay on the part of
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege, preclude any other or further exercise thereof or the
exercise of any other such right, power or privilege. The failure of either
party to insist upon performance of any terms or conditions of the Agreement
shall not be construed a waiver of future performance of any such term, covenant
or condition, and the obligations of either party with respect thereto shall
continue in full force and effect.
8.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
8.8 Assignment. This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee. Any purported
assignment by the Employee in violation hereof shall be null and void. In the
event of any sale, transfer or other disposition of all or substantially all of
the Company's assets or business, whether by merger, consolidation or otherwise,
the Company must assign this Agreement and the other party to said transaction
must consent to and honor the assignment or the Company must pay the remainder
of the present value of the Agreement with interest at 6% per annum.
8.9 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, its successors and assigns, including
without limitation any person, partnership, company or corporation which may
acquire substantially all of the Company's assets or business, or with or into
which the Company may be liquidated, consolidated, merged or otherwise combined.
This Agreement shall also inure to the benefit of, and shall be binding upon the
Employee, his heirs, distributees and personal representatives.
8.10 Headings. The headings in this Agreement are for
reference only and shall not affect the interpretation of this Agreement.
8.11 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all
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<PAGE>
such counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have signed their names
as of the day and year first above written.
International Plastic Technologies, Inc.
By: /s/ Andrew Franzone
----------------------------
Andrew Franzone, President
/s/ David L. Kassel
---------------------------
David L. Kassel
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EMPLOYMENT AGREEMENT
Employment Agreement dated as of March 15, 1998 by and between
International Plastic Technologies, Inc. (the "Company"), a Delaware
corporation, and Harry Goodman (the "Employee").
WHEREAS, the Employee is employed as Vice President and Secretary of
the Company; and
WHEREAS, the Employee's services have contributed to the growth of the
Company; and
WHEREAS, the Company desires to continue to employ and retain the
experience, ability and services of the Employee and to prevent any other
competitive business from securing his services to utilize his experience,
background and know-how; and
WHEREAS, the Board of Directors recognizes that these arrangements are
being made to help assure a continuing dedication by the Employee to his duties
to the Company; and
WHEREAS, the Board of Directors wishes to demonstrate to the employees
of the Company that the Company is concerned with the welfare of its employees
and intends to ensure that loyal employees are treated fairly;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and for other good and valuable consideration, each of the parties,
intending to be legally bound, hereby agree to the following terms and
conditions.
1. Term. The Company hereby employs the Employee, and the Employee
hereby accepts such employment, for a term commencing as of the date of this
Agreement and ending on the earlier of (i) February 28, 2008, or (ii) the date
of termination of the Employee's Employment pursuant to the provisions of
Section 4 or 5 (said period hereinafter referred to as the "Term").
2. Duties. The Employee shall serve in the capacity of Vice President
and Secretary of the Company (or such other and comparable titles and positions
as shall be given to the Employee by the Board of Directors of the Company), it
being understood that such duties shall be reasonably comparable to those duties
heretofore performed by the Employee for the Company.
3. Compensation and Benefits.
3.1 Salary. During the Term of this Agreement, the Company
shall pay the Employee an annual salary (the "Annual Salary"), calculated as
follows: (i) One Hundred Thousand Dollars ($100,000), payable in accordance with
the Company's regular payroll schedule, less such deductions as shall be
required to be withheld by law; plus (ii) an annual
<PAGE>
salary increase in an amount equivalent to the greater of five percent (5%) or
the increase in the Consumer Price Index (as defined below). To compute the
annual increase attributable to the Consumer Price Index, the Consumer Price
Index as of January, 1998 shall be compared with the Consumer Price Index for
each successive January of the Term. Any increase so calculated shall be applied
to the Annual Salary and shall be payable beginning January of each year of the
Term. For purposes of this Section, the Consumer Price Index shall mean the
Consumer Price Index for All Urban Consumers, All-Items, for New York-Northeast
New Jersey-Long Island, NY-NJ-CT (1982-84=100) published by the United States
Bureau of Labor Statistics, Department of Labor, or its successor then in
effect. If publication of the Consumer Price Index is discontinued, the parties
hereto shall accept comparable statistics on the cost of living adjustment for
New York City as computed and published by an agency of the United States or by
a responsible financial periodical or recognized authority to be selected by the
parties.
3.2 Bonus. During the Term, the Employee may receive an annual
bonus in an amount as shall be determined by the Board of Directors of the
Company.
3.3 Benefits. During the Term, the Employer shall provide and
the Employee may participate (to the extent that the Employee is eligible under
the terms of such plans or programs) in the following:
(a) family medical insurance coverage (with "family"
defined as spouse and all dependent children, under
the age 21);
(b) life and disability insurance; and
(c) all other incentive programs available to executive
officers of the Company.
3.4 Automobile. During the Term, the Employer shall provide
the Employee with an automobile to the same extent and in accordance with the
policy for executive officers of the Company. The automobile shall be comparable
in quality to that which the Company presently provides to the Employee. The
Company shall also pay all insurance, maintenance, fuel, repairs, registration
fees and other operating costs. The maximum amount paid by the Company pursuant
to this Section 3.4 shall be $1,500 per month.
3.5 Expenses. The Company shall pay or reimburse the Employee
for all reasonable and properly documented out-of-pocket expenses actually
incurred or paid by the Employee during the Term in the performance of the
Employee's services under this Agreement.
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<PAGE>
4. Termination Due to Death, Disability, Voluntary Resignation or
Termination Without Cause.
4.1 Termination Due to Death. If the Employee dies during the
Term, this Agreement shall terminate as of the date of the Employee's death and
the Employee's estate or beneficiaries shall be entitled to receive any salary,
bonus and other benefits earned and accrued prior to the date of death together
with reimbursement for any out-of-pocket expenses incurred prior to the date of
death. The Employee's estate or beneficiaries shall also be entitled to receive
payments equivalent to the Employee's Annual Salary for a period of three (3)
years following the date of death.
4.2 Termination Due to Disability. If the Employee is unable
to competently perform the duties assigned to him because of ill health or other
disability, for a period in excess of one hundred twenty (120) consecutive or
non-consecutive days out of any twelve (12) month period, the Company may, at
its option, terminate the employment of the Employee immediately by written
notice to the Employee. The Employee shall be entitled to receive any salary,
bonus and other benefits earned and accrued together with reimbursement for any
out-of-pocket expenses incurred, for the period prior to the notice of
termination. The Employee shall also be entitled to receive for a period of
three (3) years following the date of the Company's notice of termination, the
Employee's Annual Salary and all other benefits provided to executive officers,
with the exception of those benefits provided pursuant to Sections 3.2 and 3.5
hereof.
4.3 Termination Due to Voluntary Resignation. If the Employee
voluntarily resigns from the Company (in which case such resignation shall be
effective on the date the Employee provides the Company with notice of such
resignation), the Employee shall be entitled to receive any salary, bonus or
other benefits earned and accrued prior to the date of resignation, together
with reimbursement for any out-of-pocket expenses incurred prior to the date of
resignation.
4.4 Termination Without Cause. The Company may terminate the
Employee at any time for any reason other than those specified in Section 5
hereof, effective thirty (30) days after written notice is given to the Employee
of such termination; provided, however, that the Employee shall be entitled to
receive for the remainder of the Term as defined in subsection (i) of Section 1
following the date of the Company's notice of termination, the Employee's Annual
Salary and all other benefits provided to executive officers, with the exception
of those benefits provided pursuant to Sections 3.2 and 3.5 hereof. The Employee
shall not be obligated to perform any services for the Company during such
period.
5. Termination for Cause. If the Employee: (i) is convicted of a felony
or any crime involving the Company or its subsidiaries (except where such felony
or crime derives from actions taken at the direction of the Board of Directors
of the Company in writing); or (ii) is determined by the Board of Directors of
the Company to have engaged in: (a) willful misconduct
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(as hereinafter defined); (b) willful or gross neglect; (c) fraud; (d)
misappropriation; (e) embezzlement; (f) material breach of his fiduciary duty;
or (g) conduct in wanton disregard of corporate policy in the performance of his
duties hereunder, the Company may terminate the Employee's employment
immediately, at any time within thirty (30) days after receiving notice of the
occurrence of any of the events described in clauses (i) and (ii) above, by
written notice to the Employee. In the event of termination under this Section
5, the Employee shall have the right to receive compensation and other benefits
hereunder on and after the date of the termination up until the arbitration
proceedings have been concluded pursuant to Section 8.4. As used in this
Agreement, the term "willful misconduct" shall mean willful failure of the
Employee to perform his duties.
6. Covenant of the Employee.
6.1 Covenant Against Competition. The Employee acknowledges
that: (i) the principal business of the Company and its subsidiaries is the
design, marketing and manufacture of injection molded plastic products and
assemblies (the "Present Business"); (ii) the Company and its subsidiaries is
one of a limited number of entities within its industry which have developed the
present business; (iii) the Present Business is national in scope; (iv) the
Employee's work for the Company and its subsidiaries has given and will continue
to give him access to the confidential affairs and proprietary information of
the Company and its subsidiaries not readily available to the public; and (v)
the agreements and covenants of the Employee contained in this Section 6.1 are
essential to the business and goodwill of the Company.
Accordingly, the Employee covenants that:
(a) Throughout the Employee's employment with the Company and
for a period of two (2) years following the date that the Employee is given
notice of termination from the Company (in the case of termination for
disability, termination without cause or termination with cause) or for a period
of two (2) years following the date that the Employee resigns from the Company
(the "Restricted Period"), the Employee shall not, in the United States of
America, directly or indirectly: (1) engage in the Present Business or any other
principal line of business developed by the Company during the Term (hereinafter
collectively referred to as the "Company Business") for the Employee's own
account; (2) render any services in any capacity to any person or entity (other
than the Company or its subsidiaries) engaged in the Company Business; or (3)
become interested in any entity engaged in the Company Business (other than the
Company or its subsidiaries) as a partner, shareholder, principal, agent,
trustee, consultant or in any other relationship or capacity; provided, however,
the Employee may own, directly or indirectly, solely as an investment,
securities of any such entity which are traded on any national securities
exchange or NASDAQ if the Employee: (A) is not a controlling person of, or a
member of a group which controls such entity and (B) does not, directly or
indirectly, own ten percent (10%) or more of any class of securities of such
entity.
(b) During the Restricted Period, the Employee shall keep
secret and retain in strictest confidence, and shall not use for his benefit or
the benefit of others, except in connection with the business and affairs of the
Company and its subsidiaries, all confidential matters relating
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<PAGE>
to the Company Business and to the Company and its subsidiaries learned by the
Employee heretofore or hereafter, directly or indirectly, from the Company and
its subsidiaries, including any information concerning the business, affairs,
customers, clients, sources of supply and customer lists of the Company or its
subsidiaries (the "Confidential Company Information") and shall not disclose the
Confidential Company Information to anyone except with the Company's express
written consent and except for Confidential Company Information which: (1) is
publicly known at the time of receipt, or thereafter becomes publicly known
through no wrongful act of the Employee, or (2) is received from a third party
who is not under an obligation to keep such information confidential. The rights
of the Company pursuant to this Section are in addition to and shall not be
deemed to limit those rights and remedies available under common law for
protection of the type of confidential information which constitutes "trade
secrets" as defined by controlling law.
(c) The Employee shall not, without the Company's prior
written consent, directly or indirectly, knowingly solicit or encourage to leave
the employment of the Company or its subsidiaries, any employee of the Company
or its subsidiaries nor shall the Employee hire any employee who has left the
employment of the Company or its subsidiaries within one (1) year of the
termination of such Employee's employment with the Company or its subsidiaries.
(d) All memoranda, notes, lists, records and other documents
(and all copies thereof) constituting Confidential Company Information made or
compiled by the Employee or made available to the Employee concerning the
Company Business or the Company or its subsidiaries shall be the Company's
property, shall be kept confidential in accordance with the provisions of this
Section and shall be delivered to the Company at any time upon request.
6.2 Rights and Remedies Upon Breach. If the Employee breaches,
or threatens to commit a breach of any of the provisions of Section 6.1 (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies (upon compliance with any necessary prerequisites imposed by law for
the availability of such remedies), each of the rights and remedies being
independent of the other and severally enforceable, and all of the rights and
remedies being in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity:
(a) The right and remedy to have the Restrictive Covenants
specifically enforced by any court having equity jurisdiction, including,
without limitation, the right to have restraining orders and injunctions
(preliminary, mandatory, temporary and permanent) entered against the Employee
preventing violations of such covenants, threatened or actual, and whether or
not then continuing, it being acknowledged and agreed that any such breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company;
(b) The right and remedy to require the Employee to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits derived or
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received by him primarily as the result of any transactions constituting a
breach of the Restrictive Covenants. The Employee shall promptly account for and
pay over such sums to the Company. The Company may set-off any amounts due to
the Company under this Section against any amounts owed to the Employee.
7. Indemnification. The Company shall indemnify, defend and hold the
Employee harmless from any losses, liabilities, claims, damages, costs,
attorneys fees and expenses as may result from the Employee's actions that were
either taken within the scope of the Employee's duty or authorized in writing by
the Board of Directors of the Company. The Company shall have the right to
settle and/or compromise any such claims on behalf of the Employee. The Employee
shall cooperate with and assist the Company in any litigation or settlements
involving any claims which are the subject of this provision.
8. Other Provisions.
8.1 Severability. The Employee acknowledges and agrees that:
(i) he has had an opportunity to seek the advice of counsel in connection with
this Agreement; (ii) the Restrictive Covenants herein are reasonable in
geographical and temporal scope and in all other respects; and (iii) the Company
would not have entered into this Agreement but for the Restrictive Covenants
contained in this Agreement. If it is determined that any of the provisions of
this Agreement, including, without limitation, any of the Restrictive Covenants,
or any part thereof, is invalid or unenforceable, the remainder of the
provisions of this Agreement shall not thereby be affected and shall be given
full effect, without regard to the invalid portions.
8.2 Blue-Penciling. If any court determines that any of the
covenants contained in this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is unenforceable because of duration
or geographical scope, the said duration or scope of such provision, as the case
may be, shall be reduced so that such provision becomes enforceable and, in its
reduced form, such provision shall then be deemed enforceable and shall be
enforced.
8.3 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by express mail or by certified or registered mail, (return receipt requested
and postage prepaid). Any such notice shall be deemed complete when so delivered
personally, or if mailed, five (5) days after the date of deposit with the
United States Postal Service, as follows:
(i) If to the Company, to:
Koerner Silberberg & Weiner, LLP
112 Madison Avenue, 3rd Floor
New York, New York 10016
Attention: Carl Seldin Koerner, Esq.
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(ii) If to the Employee, to:
Harry Goodman
24 Ardsley Place
Rockville Centre, New York 11570
Any party may, by notice given in accordance with this Section to the
other parties hereto, designate another recipient or address for receipt of
notices hereunder.
8.4 Arbitration. Any controversy or claim arising out of, or
relating to this Agreement, or its breach, shall be settled by arbitration in
accordance with the then governing rules of the American Arbitration Association
in the City of New York. Judgement upon the award rendered may be entered and
enforced in any court of competent jurisdiction.
8.5 Entire Agreement. This Agreement supersedes all previous
written or oral understandings and agreements between the Company and the
Employee and contains the entire agreement between the parties with respect to
the subject matter hereof.
8.6 Waivers and Amendments. This Agreement and any of the
terms contained herein may not be amended, superseded, canceled, renewed,
extended or waived, unless by a written instrument signed by the parties or, in
the case of a waiver, by the party waiving compliance. No delay on the part of
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege, preclude any other or further exercise thereof or the
exercise of any other such right, power or privilege. The failure of either
party to insist upon performance of any terms or conditions of the Agreement
shall not be construed a waiver of future performance of any such term, covenant
or condition, and the obligations of either party with respect thereto shall
continue in full force and effect.
8.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
8.8 Assignment. This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee. Any purported
assignment by the Employee in violation hereof shall be null and void. In the
event of any sale, transfer or other disposition of all or substantially all of
the Company's assets or business, whether by merger, consolidation or otherwise,
the Company must assign this Agreement and the other party to said transaction
must consent to and honor the assignment or the Company must pay the remainder
of the present value of the Agreement with interest at 6% per annum.
8.9 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, its successors and assigns, including
without limitation any person, partnership, company or corporation which may
acquire substantially all of the Company's assets or business, or with or into
which the Company may be liquidated, consolidated, merged or
-7-
<PAGE>
otherwise combined. This Agreement shall also inure to the benefit of, and shall
be binding upon the Employee, his heirs, distributees and personal
representatives.
8.10 Headings. The headings in this Agreement are for
reference only and shall not affect the interpretation of this Agreement.
8.11 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have signed their names
as of the day and year first above written.
International Plastic Technologies, Inc.
By: /s/ Andrew Franzone
---------------------------
Andrew Franzone, President
/s/ Harry Goodman
---------------------------
Harry Goodman
-8-
<PAGE>
CONSULTING SERVICES AGREEMENT
This Agreement, made as of the 1st day of March, 1998, between
International Plastic Technologies, Inc., a Delaware corporation (the
"Company"), and B.C. China Business, Inc., a New York corporation (the
"Consultant")
WHEREAS, the Company wishes to arrange for the outsourcing of a portion
of its manufacturing needs to independent contractors in the People's Republic
of China (the "Territory"); and
WHEREAS, the Consultant presently maintains close professional
relationships with certain manufactures in the Territory; and
WHEREAS, the Company desires to contract for the consulting services of
the Consultant and the Consultant desires to perform such consulting services on
behalf of the Company;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually agreed by and among
the parties as follows:
1. Term. The Company hereby retains the Consultant and the Consultant
hereby accepts such retainer, for a term (the "Term") commencing as of the date
first written above and ending on March 1, 2008.
2. Services. The Consultant agrees to perform for the Company, on a
non-exclusive basis, the following services:
(a) Provision of general consulting services to the Company and the
Company's personnel in connection with, and in furtherance of, the development
and expansion of the Company's business in the Territory, the development of new
business ventures in the Territory, and the various day-to-day activities of the
Company in the management of its business in the Territory; and
(b) Provision of general consulting services on such matters as may be
requested by the Board of Directors or the President of the Company.
3. Cash Compensation.
(a) During the first twelve (12) month period of the Term, the Company
shall pay the Consultant Fifty Dollars ($50.00) per hour and (i) an amount
equivalent to one and one half per cent (1.5%) of the Net Cost (as defined
below) of all products manufactured in the Territory at the Company's request up
to a Net Cost of $5,000,000.00 per year, plus one per cent (1%) of the
<PAGE>
portion of Net Cost which exceeds $5,000,000.00 per year (the "Commission"); and
(ii) all reasonable expenses incurred by the Consultant in performing her duties
hereunder.
(b) Net Cost shall be defined for purposes of this Agreement as the
aggregate invoice price of the products manufactured in the Territory, less the
cost of shipping and any returns.
(c) The Consultant's compensation as set forth above will be reviewed
by the Company at the end of the initial twelve (12) month period.
(d) Provided that the Consultant has not breached the provisions of
this Agreement in any way and does not extend the Term, the Consultant's
Commission will continue so long as the product is being purchased by sources
developed by the Consultant.
4. Stock Compensation.
(a) Stock Grants. The Consultant will receive a minimum of 5,000 shares
of unregistered common stock of the Company upon the date that the Company's
registration for an initial public offering is declared effective by the
Securities and Exchange Commission (the "Effective Date"). The Consultant shall
receive a minimum of 5,000 unregistered shares of common stock of the Company on
each anniversary of the Effective Date for four years following the Effective
Date.
(b) Option Grants. The Consultant will receive a minimum of 5,000
options to purchase common stock of the Company on the Effective Date. The
Consultant shall receive 5,000 options on each anniversary of the Effective Date
for four years following the Effective Date. The exercise price of the options
will be $4.50.
5. Consultant's Covenants. During the Term and thereafter, the Consultant
shall keep secret and retain in strictest confidence, and shall not use for her
benefit or the benefit of others, except in connection with the business and
affairs of the Company and its affiliates, all confidential matters relating to
the present business and any other principal line of business developed by the
Company during the Term (hereinafter collectively referred to as the "Company
Business") and shall not disclose them to anyone except with the Company's
express written consent. These rights of the Company are in addition to and
without limitation to those rights and remedies available under common law for
protection of the types of such confidential information which constitute "trade
secrets" as construed under controlling law.
6. Miscellaneous.
(a) This Agreement contains the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto. This Agreement may be amended,
superseded, canceled, renewed or extended, only by a written instrument signed
by both parties.
2
<PAGE>
(b) This Agreement, and the Consultant's rights and obligations
hereunder, may not be assigned by the Consultant (other than to a corporation
the majority of whose shares are owned by the Consultant, provided that the
Consultant remains solely responsible for the performance of all the services
and compliance with all the provisions of this Agreement). Any purported
assignment by the Consultant in violation hereof shall be null and void.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors, permitted assigns, heirs, executors
and legal representatives.
(d) This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original
but all such counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have signed their names as of
the day and year first above written.
International Plastic Technologies, Inc.
By: /s/ Andrew Franzone
------------------------
Andrew Franzone, President
B.C. China Business, Inc.
By: /s/ Bao-wen Chen
------------------------
Bao-wen Chen, President
3
<PAGE>
International Plastic Technologies, Inc.
320 Broad Hollow Road
Farmingdale, New York 11735
March 1, 1998
Bao-wen Chen
61 West 62nd Street
Apt. 26L
New York, New York 10023
Re: Consulting Agreement
Dear Ms Chen:
Reference is made to that certain Consulting Services
Agreement by and between International Plastic Technologies, Inc. (the
"Company") and B.C. China Business, Inc. ("BCCB") dated as of March 1, 1998 (the
"Agreement"). Capitalized terms not defined herein have the meanings attributed
to them in the Agreement.
By signing this letter below, you will confirm and acknowledge
the following:
1. The Company has entered into a Consulting Services Agreement with BCCB
for the services of BCCB as the general consultant to the Company in
connection with the development and expansion of the Company's business
in the People's Republic of China;
2. The Company would not have entered into the Agreement without the
representation of BCCB that BCCB would be providing your services to
the Company; and
3. You agree to be available to provide your services to the Company as
required under the Agreement.
International Plastic Technologies, Inc.
By: /s/ Andrew Franzone
--------------------------------
AGREED AND ACCEPTED:
By: Bao-wen Chen
--------------------------
Bao-wen Chen
<PAGE>
A 185 Blumberg's Improved Gilsey Form Lease 12-78 JULIUS BLUMBERG, INC.
PUBLISHER, NYC 10013
This Agreement BETWEEN
K&G Realty Associates, 320 Broad Hollow Road, Farmingdale, New York
as Landlord
and
Electronic Hardware Corp., 320 Broad Hollow Rd., Farmingdale, New York
as Tenant
WITNESSETH: The Landlord hereby leases to the Tenant the following
premises: the entire building known as 320 Broad Hollow Rd., Farmingdale, NY
for the term of
to commence from the 1st day of January 1990 and
to end on the 31st day of December 1995 to be used and
occupied only for manufacturing and related activities only
upon the conditions and covenants following:
1st. That the Tenant shall pay the annual rent of $ 132,000.00 per year
said rent to be paid in equal monthly payments in advance, on the
1st day of each and every month
during the term aforesaid, as follows:
$11,000.00 per month
2nd. That the Tenant shall take good care of the premises and shall, at
the Tenant's own cost and expense make all repairs as set forth more fully in
paragraph 28.
and at the end or other expiration of the term, shall deliver up the demised
premises in good order or condition, damages by the elements excepted.
3rd. that the Tenant shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations and requirements of the Federal, State
and Local Governments and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in, upon, or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the New York Board of Fire Underwriters, or any other similar
body, at the Tenant's own cost and expense.
4th. That the Tenant, successors, heirs, executors or administrators shall
not assign this agreement, or underlet or underlease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's consent
in writing; or occupy, or permit or suffer the same to be occupied for any
business or purpose deemed disreputable or extra-hazardous on account of fire,
under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the original term.
5th. Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Premises can not be used because of
fire or other casualty, Tenant is not required to pay rent for the time the
Premises are unuseable. If part of the Premises cant not be used, Tenant must
pay rent for the useable part. Landlord need only repair the damaged structural
parts of the Premises. Landlord is not required to repair or replace any
equipment, fixtures, furnishings or decorations unless originally installed by
Landlord. Landlord is not responsible for delays due to setting insurance
claims, obtaining estimates, labor and supply problems or any other cause not
fully under Landlord's control.
If the fire or other casualty is caused by an act or neglect of
Tenant, Tenant's employees or invitees, or at the time of the fire or casualty
Tenant is in default in any term of this Lease, then all repairs will be made at
Tenant's expense and Tenant must pay the full rent with no adjustment. The cost
of the repairs will be added rent.
Landlord has the right to demolish or rebuild the Building if there
is substantial damage by fire or other casualty. Landlord may cancel this Lease
within 30 days after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The Lease will end 30 days after
the substantial fire or casualty by giving Tenant notice of Landlord's intention
to demolish or rebuild. The Lease will end 30 days after Landlord's cancellation
notice to Tenant. Tenant must deliver the Premises to Landlord on or before the
cancellation date in the notice and pay all rent due to date of the fire
or casualty. If the Lease is canceled Landlord is not required to repair the
Premises or Building. The cancellation does not release Tenant of liability in
connection with the fire or casualty. This Section is intended to replace the
terms of New York Real Property Law Section 227.
[end of page 1]
<PAGE>
6th. The said Tenant agrees that the said Landlord and the Landlord's
agents and other representatives shall have the right to enter into and upon
said premises, or any part thereof, at all reasonable hours for the purpose of
examining the same, or making such repairs or alterations therein as may be
necessary for the safety and preservation thereof.
7th. The Tenant also agrees to permit the Landlord or the Landlord's
agents to show the premises to persons wishing to hire or purchase the same; and
the Tenant further agrees that on and after the sixth month, next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any part
thereof, offering the premises "To Let" or "For Sale", and the Tenant hereby
agrees to permit the same to remain thereon without hindrance or molestation.
8th. That if the said premises, or any part thereof shall be deserted or
become vacant during said term, or if any default be made in the payment of the
said rent or any part thereof, or if any default be made in the performance of
any of the covenants herein contained, the Landlord or representatives may
re-enter the said premises by force, summary proceedings or otherwise, and
remove all persons therefrom, without being liable to prosecution therefor, and
the Tenant hereby expressly waives the service of any notice in writing of
intention to re-enter, and the Tenant shall pay at the same time as the rent
becomes payable under the terms hereof a sum equivalent to the rent reserved
herein, and the Landlord may rent the premises on behalf of the Tenant,
reserving the right to rent the premises for a longer period of time than fixed
in the original lease without releasing the original Tenant from any liability,
applying any moneys collected, first to the expense of resuming or obtaining
possession, second to restoring the premises to a rentable condition, and then
to the payment of the rent and all other charges due and to grow due to the
Landlord, any surplus to be paid to the Tenant, who shall remain liable for any
deficiency.
9th. Landlord way, replace, at the expense of Tenant, any and all broken
glass in and about the demised premises. Landlord may insure, and keep insured,
all plate glass in the demised premises for and in the name of Landlord. Bills,
for the premiums therefor shall be rendered by Landlord to Tenant at such times
as Landlord may elect, and shall be due from, and payable by Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid as,
additional rental. Damage and injury to the said premises, caused by the
carelessness, negligence or improper conduct on the part of the said Tenant or
the Tenant's agents or employees shall be repaired as speedily as possible by
the Tenant at the Tenant's own cost and expense.
10th. That the Tenant shall neither encumber nor obstruct the sidewalk in
front of, entrance to, or halls and stairs of said premises, nor allow the same
to be obstructed or encumbered in any manner.
11th. The Tenant shall neither place, or cause or allow to be placed, any
sign or signs of any kind whatsoever at, in or about the entrance to said
premises or any other part of same, except in or at such place or places as may
be indicated by the Landlord and consented to by the Landlord in writing. And in
case the Landlord or the Landlord's representatives shall deem it necessary to
remove any such sign or signs in order to paint the said premises or the
building wherein same is situated or make any other repairs, alterations or
improvements in or upon said premises or building or any part thereof, the
Landlord shall have the right to do so, providing the same be removed and
replaced at the Landlord's expense, whenever the said repairs, alterations or
improvements shall be completed.
12th. That the Landlord is exempt from any and all liability for any damage
or injury to person or property caused by or resulting from steam, electricity,
gas, water, rain, ice or snow, or any leak or flow from or into any part of said
building or from any damage or injury resulting or arising from any other cause
or happening whatsoever unless said damage or injury be caused by or be due to
the negligence of the Landlord.
13th. That if default be made in any of the covenants herein contained,
then it shall be lawful for the said Landlord to reenter the said premises, and
the same to have again, re-possess and enjoy. The said Tenant hereby expressly
waives the service of any notice in writing of intention to re-enter.
14th. That this instrument shall not be a lien against said premises in
respect to any mortgages that are now on or that hereafter may be placed against
said premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the Landlord's
assigns and legal representatives to the option of canceling this lease without
incurring any expense or damage and the term hereby granted is expressly
limited accordingly.
15th. The Tenant has this day deposited with the Landlord the sum of
$ as security for the full and faithful performance by the Tenant
of all the terms, covenants and conditions of this lease upon the Tenant's part
to be performed, which said sum shall be returned to the Tenant after the time
fixed as the expiration of the term herein, provided the Tenant has fully and
faithfully carried out all of said terms, covenants and conditions on Tenant's
part to be performed. In the event of a bona fide sale, subject to this lease,
the Landlord shall have the right to transfer the security to the vendee for the
benefit of the Tenant and the Landlord shall be considered released by the
Tenant from all liability for the return of such security; and the Tenant agrees
to look to the new Landlord solely for the return of the said security, and it
is agreed that this shall apply to every transfer or assignment made of the
security to a new Landlord.
16th. That the security, deposited under this lease shall not be mortgaged,
assigned or encumbered by the Tenant without the written consent of the
Landlord.
17th. It is expressly understood and agreed that in case the demised
premises shall be deserted or vacated, or if default be made in the payment of
the rent or any part thereof as herein specified, or if, without the consent of
the Landlord, the Tenant shall sell, assign, or mortgage this lease or if
default be made in the performance of any of the covenants and agreements in
this lease contained on the part of the Tenant to be kept and performed, or if
the Tenant shall fail to comply with any of the statutes, ordinances, rules,
orders, regulations and requirements of the Federal, State and Local Governments
or of any and all their Departments and Bureaus, applicable to said premises, or
if the Tenant shall file or there be filed against Tenant a petition in
bankruptcy or arrangement, or Tenant be adjudicated a bankrupt or make an
assignment for the benefit of creditors or take advantage of any insolvency act,
the Landlord may, if the Landlord so elects, at any time thereafter terminate
this lease and the term hereof, on giving to the Tenant five days' notice in
writing of the Landlord's intention so to do, and this lease and the term hereof
shall expire and come to an end on the date fixed in such notice as if the said
date were the date originally fixed in this lease for the expiration hereof.
Such notice may be given by mail to the Tenant addressed to the demised
premises.
18th. Tenant shall pay to Landlord the rent or charge, which may, during
the demised term, be assessed or imposed for the water used or consumed in or on
the said Premises, whether determined by meter or otherwise, as soon as and when
the same may be assessed or imposed and will also pay the setting of a water
meter in the said premises should the latter be required. Tenant shall pay
Tenant's proportionate part of the sewer rent or charge imposed upon the
building. All such rents or charges or expenses shall be paid as additional rent
and shall be added to the next month's rent thereafter to become due.
19th. That the Tenant will not nor will the Tenant permit undertenants or
other persons to anything in said premises, or bring anything into said
premises, or permit anything to be brought into said premises or to be kept
therein, which will in any way increase the rate of fire insurance on said
demised premises, nor use the demised premises or any part thereof, nor suffer
or permit their use for any business or purpose which would cause an increase in
the rate of fire insurance on said building, and the Tenant agrees to pay on
demand any such increase.
20th. The failure of the Landlord to insist upon a strict performance of
any of the terms, conditions and covenants herein, shall not be deemed a waiver
of any rights or remedies that the Landlord may have, and shall not be deemed a
waiver of any subsequent breach or default in the terms, conditions and
covenants herein contained. This instrument may not be changed, modified,
discharged or terminated orally.
21st. If the whole or any part of the demised premises shall be acquired
or condemned by Eminent Domain for any public or quasi public use or purpose,
then and in that event, the term of this lease shall cease and terminate from
the date of title vesting in such proceeding and Tenant shall have no claim
against Landlord for the value of any unexpired term of said lease. No part of
any award shall belong to the Tenant.
[end of page 2]
<PAGE>
22nd. If after default in payment of rent or violation of any other
provision of this lease, or upon the expiration of this lease, the Tenant moves
out or is dispossessed and fails to remove any trade fixtures or other property
prior to such said default, removal, expiration of lease, or prior to the
issuance of the final order or execution of the warrant, then and in that event,
the said fixtures and property shall be deemed abandoned by the said Tenant and
shall become the property of the Landlord.
23rd. In the event that the relation of the Landlord and Tenant may cease
or terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this lease or by the ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in
monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained, the difference between the rent reserved and the
rent collected and received, if any, by the Landlord during the remainder of the
unexpired term, such difference or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference or
deficiency shall from time to time be ascertained; and it is mutually agreed
between Landlord and Tenant that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising out of
or in any way connected with this lease, the Tenant's use or occupancy of said
premises, and/or any claim of injury or damage.
24th. The Tenant waives all rights to redeem under any law of the State
of New York.
25th. This lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in nowise be affected, impaired or excused because Landlord
is unable to supply or is delayed in supplying any service expressly or
impliedly to be supplied or is unable to make, or is delayed in making any,
repairs, additions, alterations or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of governmental preemption in connection with a
National Emergency or in connection with any rule, order or regulation of any
department or subdivision thereof of any governmental agency or by reason of the
condition of supply and demand which have been or are affected by war or other
emergency.
26th. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to its appliances, nor for any space
taken to comply with any law, ordinance or order of a governmental authority. In
respect to the various "services," if any, herein expressly or impliedly agreed
to be furnished by the Landlord to the Tenant, it is agreed that there shall be
no diminution or abatement of the rent, or any other compensation, for
interruption or curtailment of such "service" when such interruption or
curtailment shall be due to accident, alterations or repairs desirable or
necessary to be made or to inability or difficulty in securing supplies or labor
for the maintenance of such "service" or to some other cause, not gross
negligence on the part of the Landlord. No such interruption or curtailment of
any such "service" shall be deemed a constructive eviction. The Landlord shall
not be required to furnish, and the Tenant shall not be entitled to receive, any
of such "services" during any period wherein the Tenant shall be in default in
respect to the payment of rent. Neither shall there be any abatement or
diminution of rent because of making of repairs, improvements or decorations to
the demised premises after the date above fixed for the commencement of the
term, it being understood that rent shall, in any event, commence to run at such
date so above fixed.
27th. Landlord shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Tenant or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until possession is given or is available, but the term
herein shall not be extended.
additional provisions contained in Rider.
And the said Landlord doth covenant that the said Tenant on paying
the said yearly rent, and performing the covenants aforesaid, shall and may
peacefully and quietly have, hold and enjoy the said demised premises for the
term aforesaid, provided however, that this covenant shall be conditioned upon
the retention of title to the premises by the Landlord.
And it is mutually understood and agreed that the covenants and
agreements contained in the within lease shall be binding upon the parties
hereto and upon their respective successors, heirs, executors and
administrators.
In Witness Whereof, the parties have interchangeably set their
hands and seals (or caused these presents to be signed by their proper corporate
officers and caused their proper corporate seal to be hereto affixed) this 19th
day of December 1989.
Signed, sealed and delivered K&G Realty Associates
in the presence of By: /s/ Harry Goodman L.S.
-----------------------------
Electronic Hardware Corporation
By: /s/ Andrew Franzone L.S.
-----------------------------
L.S.
-----------------------------
[end of page 3]
<PAGE>
State of New York )
) ss:
County of )
On the ________________ day of ____________________________ 19__,
before me personally came _________________ to me known and known to me to be
the individual described in, and who executed, the foregoing instrument,
and ___________________________________________ acknowledged to me that he
executed the same
State of New York )
) ss:
County of )
On the day of 19 , before me personally came ______________________ to
me known, who, being by me duly sworn, did depose and say that he resides at
No.______
_______________________________________________________________________________
that he is the ______________________ of ________________________ the
corporation mentioned in, and which executed, the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of
_______________________________ of said corporation; and that he signed his name
thereto by like order.
In Consideration of the letting of the premises within mentioned
to the within named Tenant and the sum of $1.00 paid to the undersigned by the
within named Landlord, the undersigned do hereby covenant and agree,
to and with the Landlord and the Landlord's legal representatives, that if
default shall at any time be made by the said Tenant in the payment of the rent
and the performance of the covenants contained in the within lease, on the
Tenant's part to be paid and performed, that the undersigned will well and truly
pay the said rent, or any arrears thereof, that may remain due unto said
Landlord, and also pay all damages that may arise in consequence of the
non-performance of said covenants, or either of them, without requiring notice
of any such default from the said Landlord. The undersigned hereby waives all
right to trial by jury in any action or proceeding hereinafter instituted by the
Landlord, to which the undersigned may be a party.
In Witness Whereof, the undersigned ha set hand and seal
this ______ day of _____________________, 19___
WITNESS
L.S.
-------------------
<PAGE>
RIDER TO LEASE AGREEMENT BETWEEN K & G REALTY ASSOCIATES,
AS LANDLORD, AND ELECTRONIC HARDWARE CORP.,
AS TENANT, DATED THE 1st DAY OF January 1990
28th. Tenant shall, at its own expense, make all necessary repairs and
replacements to the leased property and to the pipes, heating system, plumbing
system, window glass or fixtures and all other appliances and appurtenances
belonging thereto, all equipment, used in connection with the leased property,
and the sidewalks, curbs and vaults adjoining or appurtenant to the leased
property. Such repairs and replacements, interior and exteriors ordinary as well
as extraordinary, and structural as well as nonstructural, shall be made
promptly, as and when necessary. All repairs and replacements shall be in
quality and class equal to the original work. On default of Tenant in making
such repairs or replacements, Landlord may, but shall not be required to, make
such repairs and replacements for Tenant's account, and the expense thereof
shall constitute and be collectible as additional rent.
[LANDLORD AND]
29th. Tenant shall not assign or sublet the whole nor any part of the
demised premises.
30th. If the Landlord or Tenant or any successor in interest shall be an
individual, joint venture, tenancy in common, firm, or partnership, general or
limited, there shall be no personal liability on such individual or on the
members of such joint venture tenancy in common, firm, or partnership or on such
joint venture, tenancy in common, firm, or partnership, in respect to any of the
covenants or conditions of this lease. The Landlord and the Tenant shall look
solely to the equity of the Landlord in the property or to the Tenant's interest
in the leasehold estate for the satisfaction of the remedies of the Landlord or
the Tenant, as the case may be, in the event of a breach by the Landlord or the
Tenant of any of the covenants or conditions of this lease.
31st. (a) It is the intention of the parties that the Landlord shall
receive the rents, additional rents, and all sums payable by the Tenant under
this lease free of all taxes, expenses, charges, damages, and deductions of any
nature whatsoever and the Tenant covenants and agrees to pay all sums which
except for this lease would have been chargeable against the leased property and
payable by the Landlord. The Tenant shall, however, be under no obligation to
pay interest on any mortgage on the fee of the leased property, any franchise or
income tax payable by the Land lord, or any gift, inheritance, transfer, estate,
or succession tax by reason of any present or future law which may be enacted
during the term of this lease.
(b) All taxes, charges, costs, and expenses which the Tenant is
required to pay hereunder, together with all interest and penalties that may
accrue thereon in the event of the Tenant's failure to pay such amounts, and all
damages, costs, and expenses which the Landlord may incur by reason of any
default of the Tenant or failure on the Tenant's part to comply with the terms
of this leases shall be deemed to be additional rent and, in the event of
nonpayment by the Tenant, the Landlord shall have all the rights and remedies
with respect thereto as the Landlord has for the nonpayment of the basic rent.
32nd. Throughout the term of this lease, the Tenant shall pay premiums
for insurance coverage on the leased property, including fire and windstorm
insurance, in such amounts and with such companies, as now maintained by the
Landlord.
33rd. In the event the Real Property taxes for the demised premises are
increased at any time during the term hereof, over and above the total taxes
allowable to the calendar year 1990 -1995 which is in the amount of $26,600.00,
then the difference representing the increase shall be paid by the tenant
immediately upon receipt of the tax bill.
ELECTRONIC HARDWARE CORPORATION
By: /s/ A Franzone
-----------------------------
K&G Realty Associates
By: /s/ Harry Goodman
-----------------------------
<PAGE>
ELECTRONIC HARDWARE CORPORATION
320 Broad Hollow Road, Farmingdale, New York 11735
(516) 752-1950 o Fax: (516) 752-1971
March 16, 1995
K&G Realty Associates and Electronic Hardware
Corporation hereby agree that the lease dated
December 19, 1989, concerning the property know
as 320 Broad Hollow Road, Farmingdale, NY, be
extended for 10 years, until December 31, 2005 under
the exact same terms as shown on the lease.
/s/ Harry Goodman
------------------------------
K & G Realty Associates
/s/A. Franzone
-------------------------------
Electronic Hardware Corporation
<PAGE>
RIDER
THIS LEASE RIDER, made as of this 1st day of March, 1998, by and
between K&G REALTY ASSOCIATES, a New York general partnership ("Landlord") and
ELECTRONIC HARDWARE CORP. ("Tenant").
WHEREAS, by a Lease dated the 19th day of December, 1989, Landlord
leased unto Tenant, certain premises designated as 320 Broadhollow Road,
Farmingdale, New York 11735, as more particularly described in said Lease; and
WHEREAS Landlord and Tenant now desire to amend and modify the Lease
in certain respects;
NOW THEREFORE, in consideration of the mutual agreements and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is mutually agreed
by and among the parties as follows:
1. (a) The annual rent provided for in Paragraph 1st of the Lease shall
be increased to $137,000 per year (the "Base Rent"), payable in equal monthly
installments on the 1st day of each month during the term of the Lease. The
Base Rent shall be increased each year by an amount equivalent to the increase
in the Consumer Price Index (as defined below).
(b) To compute the annual increase attributable to the Consumer Price
Index, the Consumer Price Index as of January, 1998 (the "Base Price Index")
shall be compared with the Consumer Price Index for each successive January of
the Term. In the event the Consumer Price Index for January in any calendar
year during the Term reflects an increase over the Base Price Index, then the
Base Rent hereunder shall be multiplied by the percentage difference between
the Consumer Price Index for such January and the Base Index, and shall be
payable as additional rent beginning January of each year of the Term. Such
additional rent shall thereafter be payable hereunder, in equal monthly
installments, until it is readjusted pursuant to the terms of this Rider.
(c) For purposes of this Section, the Consumer Price Index shall mean
the Consumer Price Index for All Urban Consumers, All-Items, for New
York-Northeast New Jersey-Long Island, NY-NJ-CT (1982-84=100) published by the
United States Bureau of Labor Statistics, Department of Labor, or its
successor then in effect. If publication of the Consumer Price Index is
discontinued, the parties hereto shall accept comparable statistics on the
cost of living adjustment for New York City as computed and published by an
agency of the United States or by a responsible financial periodical or
recognized authority to be selected by the parties.
2. Paragraph 33rd of said Lease is hereby deleted in its entirety, and in its
place and stead is substituted the following:
"In the event the Real Property taxes for the demised
premises are increased at any time during the term hereof,
over and above the total taxes allocable to the calendar
year 1990-1991 which is in the amount of $26,000, then the
difference representing the increase shall be paid by the
Tenant within twenty (20) days of
<PAGE>
receipt of the tax bill."
3. Except as herein modified, all other terms, covenants and
conditions of the aforesaid Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Rider on
the date first written above
K&G REALTY ASSOCIATES
By: /s/ David L. Kassel
David L. Kassel
ELECTRONIC HARDWARE CORP.
By: /s/ Andrew Franzone
Andrew Franzone
<PAGE>
$ 125,000 September 13 1994
Electronic Hardware Corp. after date, for value received, ______ promise to
pay to the order of David Kassel Defined Benefit 125,000 Dollars at
2,655.88/Month with interest at 10 per cent.
This note is one of a series of 1 Notes of even date herewith aggregating
$159,352.80.
It is understood and agreed that in the event of non-payment of any one of
said series and such default continue for a period of 180 days, then at the
option of the holder of any of the said notes, all or any part of the remaining
unpaid notes shall forthwith become due and payable. The failure to assert this
right shall not be deemed a waiver thereof.
No. 1 Due 9/13/99 ____________________________________
By /s/A. Franzone
---------------------------------
PRES. - VICE PRES.
/s/Harry Goodman
---------------------------------
SECTY. - TREAS.
<PAGE>
$219,438.00
PROMISSORY NOTE
The undersigned ELECTRONIC HARDWARE CORP. of 320 Broad Hollow Road, Farmingdale,
New York 11735 in consideration for a loan of $219,483.00 made by KASSEL MGT
DEFINED BENEFIT (the receipt of which is hereby acknowledged), hereby promises
to pay KASSEL MGT DEFINED BENEFIT the sum of TWO HUNDRED NINETEEN THOUSAND FOUR
HUNDRED EIGHTY-THREE ($219,483.00) dollars in 60 equal payments of $4,633.37 at
Barnes Hill Road, Sherman, CT or such address as Kassel Mgt. may specify in
writing.
Interest shall accrue at 10% per annum.
This note and its enforceability shall be governed by the laws of the State of
New York.
August 1, 1996
Other notes due to Kassel Mgt. Defined Benefit September 13, 1994 $125,000.00 @
10% over 5 years. All other notes to David Kassel and Kassel Mgt. in effect at
this date are void.
ELECTRONIC HARDWARE CORPORATION
Andrew Franzone /s/A. Franzone
David Kassel /s/ David Kassel
Witness by:
/s/Illegible 8/1/96
- ----------------------------
<PAGE>
NON-NEGOTIABLE PROMISSORY NOTE
$150,000 December 31, 1997
FOR VALUE RECEIVED, ELECTRONIC HARDWARE CORPORATION, a New
York corporation with its principal place of business at 320 Broadhollow Road,
Farmingdale, New York 11735 (the "Payor"), hereby promises to pay to the order
of David Kassel, residing at 145 West 67th Street, Apt. 40D, New York, New York
10023 (the "Payee"), the principal sum of ONE HUNDRED FIFTY THOUSAND DOLLARS
($150,000) in lawful money of the United States, together with interest at the
rate of six percent (6%) per annum.
The amount due hereunder shall be payable in a lump sum
payment of principal plus accrued interest on January 1, 1999. In the event that
payment is made more than fifteen (15) days after its due date, the Payor shall
pay to the Payee a premium of five percent (5%) interest on the unpaid balance.
At any time and from time to time, the Payor may, at its
option, prepay all or any part of the balance of this Note without penalty. Any
such partial prepayments shall be applied by the Payee (i) first, to accrued and
unpaid interest and (ii) second, to the principal.
This Note is non-negotiable and may not be transferred or
assigned.
If an event of default should occur, the Payor shall be
granted a period of twenty (20) days from the date it receives written notice of
such default in which to cure such default. Any and all reasonable attorneys'
fees and costs incurred by the Payee to enforce the terms of this Note following
a default will be the responsibility of the Payor.
This Note is delivered pursuant to a Letter Agreement dated
December 31, 1997 . This Note may not be changed, modified or terminated orally,
but only by an agreement in writing signed by the party to be charged. This Note
shall be governed by and construed in accordance with the laws of the State of
New York, and shall be binding upon the Payor and its successors and assigns and
inure to the benefit of the Payee.
IN WITNESS WHEREOF, the Payor has executed and delivered this
Note as of the date first above written.
Electronic Hardware Corporation
By: /s/ Andrew Franzone
--------------------------------
Andrew Franzone, President
<PAGE>
NON-NEGOTIABLE PROMISSORY NOTE
$107,500 January 1, 1998
FOR VALUE RECEIVED, COMPACT DISC PACKAGING CORP., a Delaware
corporation with its principal place of business at 320 Broadhollow Road,
Farmingdale, New York 11735 (the "Payor"), hereby promises to pay to the order
of David L. Kassel, residing at 145 West 67th Street, Apt. 40D, New York, New
York 10023 (the "Payee"), the principal sum of ONE HUNDRED SEVEN THOUSAND FIVE
HUNDRED DOLLARS ($107,500) in lawful money of the United States, together with
interest at the rate of ten percent (10%) per annum.
The amount due hereunder shall be payable in a lump sum
payment of principal plus accrued interest on January 1, 1999. At any time and
from time to time, the Payor may, at its option, prepay all or any part of the
Note without penalty. Any such partial prepayments shall be applied by the Payee
(i) first, to accrued and unpaid interest and (ii) second, to the principal.
This Note is non-negotiable and may not be transferred or
assigned.
If an event of default should occur, the Payor shall be
granted a period of twenty (20) days from the date it receives written notice of
such default in which to cure such default. Any and all reasonable attorneys'
fees and costs incurred by the Payee to enforce the terms of this Note following
a default will be the responsibility of the Payor.
This Note is delivered pursuant to a Letter Agreement dated
January 1, 1998, between Compact Disc Packaging Corp. and David L. Kassel. This
Note may be changed, modified or terminated only by an agreement in writing
signed by the party to be charged. This Note shall be governed by and construed
in accordance with the laws of the State of New York, and shall be binding upon
the Payor and its successors and assigns and inure to the benefit of the Payee.
IN WITNESS WHEREOF, the Payor has executed and delivered this
Note as of the date first above written.
Compact Disc Packaging Corp.
By: /s/ Carl S. Koerner
-----------------------------
Carl S. Koerner, Secretary
<PAGE>
GUARANTEE, dated as of January 1, 1998, given by International
Plastic Technologies, Incorporated, a Delaware corporation (the "Guarantor"), to
David L. Kassel ("Kassel"), in order to induce Kassel to accept a Promissory
Note dated January 1, 1998, for the principal sum of One Hundred Seven Thousand
Five Hundred Dollars ($107,500) from Compact Disc Packaging Corp. ("Compact
Disc") in favor of Kassel (the "Note").
Guarantor hereby unconditionally guarantees payment to Kassel,
when and as due, of the principal and interest due on the Note. If Compact Disc
defaults by failing to make any payment under the Note when due, Guarantor
agrees, without Kassel first having to proceed against Compact Disc, to pay on
written demand all sums due under the Note to Kassel from Compact Disc, as well
as any and all reasonable expenses incurred by Kassel in enforcing or collecting
such sums due by reason of Compact Disc's default.
Kassel shall not, by any act or delay, be deemed to have
waived any right under the Note or to have acquiesced in any default or in any
breach of any of the terms and conditions of the Note. No failure to exercise,
nor any delay in exercising, on the part of Kassel, any right, power or
privilege under the Note shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by Kassel of any
right or remedy under the Note on any occasion shall not be construed as a bar
to any right or remedy that Kassel would otherwise have on any future occasion.
The Guarantor waives presentment and notice of dishonor.
This Guarantee is delivered pursuant to and is subject to the
terms and conditions of a Letter Agreement dated January 1, 1998, between
Compact Disc Packaging Corp. and David L. Kassel. This Guarantee may be changed,
modified or terminated only by an agreement in writing signed by the party to be
charged. This Guarantee shall be governed by and construed in accordance with
the laws of the State of New York, and shall be binding upon the Guarantor and
its successors and assigns and incur to the benefit of Kassel.
IN WITNESS WHEREOF, the undersigned has caused this Guarantee
to be duly executed and delivered by its duly authorized officer as of the date
first written above.
International Plastic Technologies, Inc.
By: /s/ Andrew Franzone
-----------------------------------
Andrew Franzone, President
<PAGE>
$125,000.000
DEMAND NEGOTIABLE PROMISSORY NOTE
The undersigned ELECTRONIC HARDWARE CORP. of 320 Broad Hollow Road, Farmingdale,
New York 11735 in consideration for a loan of $125,000.00 made by HARRY GOODMAN
(the receipt of which is hereby acknowledged), hereby promises to pay HARRY
GOODMAN the sum of ONE HUNDRED TWENTY-FIVE THOUSAND ($125,000.00) dollars over 5
years at 25 Ardsley Place, Rockville Centre, New York or such address as Harry
Goodman may specify in writing.
Interest shall accrue at 10% per annum.
This note and its enforceability shall be governed by the laws of the State of
New York.
September 1, 1994
ELECTRONIC HARDWARE CORPORATION
Andrew Franzone /s/A. Franzone
Harry Goodman /s/Harry Goodman
Witness by:
/s/Illegible
- ----------------------------
<PAGE>
$175,000.000
DEMAND NEGOTIABLE PROMISSORY NOTE
The undersigned ELECTRONIC HARDWARE CORP. of 320 Broad Hollow Road, Farmingdale,
New York 11735 in consideration for a loan of $175,000.00 made by HARRY GOODMAN
(the receipt of which is hereby acknowledged), hereby promises to pay HARRY
GOODMAN the sum of ONE HUNDRED SEVENTY-FIVE THOUSAND ($175,000.00) dollars over
5 years at 25 Ardsley Place, Rockville Centre, New York or such address as Harry
Goodman may specify in writing.
Interest shall accrue at 10% per annum.
This note and its enforceability shall be governed by the laws of the State of
New York.
August 1, 1996
Other note due to Harry Goodman: September 1, 1994 $125,000.00 @ 10% over 5
Years. All other notes except those listed are void.
ELECTRONIC HARDWARE CORPORATION
Andrew Franzone /s/A. Franzone
Harry Goodman /s/Harry Goodman
Witness by:
/s/Illegible
- ----------------------------
<PAGE>
Republic National Bank To the Lending Officers:
Republic National Bank of New York Use this Note for fixed or floating
rate demand loans extended under
a revolving line of credit.
DEMAND GRID NOTE
New York, New York
$750,000.00 Date: December 1, 1997
- -----------
ON DEMAND, the undersigned ("Maker") promises to pay to the order of
REPUBLIC NATIONAL BANK OF NEW YORK ("Bank") at the principal office of Bank
located at 152 Fifth Avenue, New York, New York 10018 or at any of its other
banking offices in New York as Bank may designate by written notice to Maker,
the principal sum of $750,000.00 DOLLARS or so much thereof as shall be advanced
by Bank to Maker, in Bank's sole discretion, and not repaid, together with
interest on the unpaid principal amount hereof from time to time outstanding
from the date hereof until the date on which this Note is paid in full, at the
rate set forth below.
Interest on the unpaid principal of this Note will be due and payable
when demand is made for payment of the principal of this Note and (indicate
whichever is applicable):
/X/ on the last day of each month.
/ / on the ____ day of each _____.
Prior to the date that demand is made for payment of the principal
hereof, this Note shall bear interest at a rate (the "Contract Rate") equal to
(indicate whichever is applicable):
/ / a fixed rate of ___% per annum.
/X/ a fluctuating rate of 1/2% per annum above the
---
Reference Rate ( as defined below), such rate to
change without notice from time to time with each
change in the Reference Rate.
After demand is made for payment of the principal of this Note, interest under
this Note shall be payable on demand and shall accrue at a fluctuating rate per
annum equal to 2% per annum above (i) if the Contract Rate is a fixed rate, the
Contract Rate, or (ii) if the Contract Rate is a fluctuating rate, the greater
from time to time of (x) the Contract Rate in effect on the date that the
principal became due and (y) the Contract Rate that would have been in effect
from time to time if the principle had not become due. Interest shall be
calculated on the basis of a 360-day year for actual days elapsed. In no event
shall the interest rate applicable at any time to this Note exceed the maximum
rate permitted by law. As used herein,"Reference Rate" means the rate
established by Bank from time to time at its principal domestic office as its
reference lending rate for domestic commercial loans. Bank may make loans to
customers above, at or below the Reference Rate.
This Note evidences loans made by Bank to Maker in Bank's sole
discretion, from time to time. The unpaid principal balance of this Note at any
time shall be the total amount advanced by Bank to Maker in Bank's sole
discretion, less the total amount of principal payments made hereon by Maker.
The date and amount of each such loan and each payment on account of principal
thereof may be endorsed by Bank on the grid attached to and made a part of this
Note, and when so endorsed shall represent evidence thereof binding upon Maker
in the absence of manifest error. Any failure by Bank to so endorse shall in no
way mitigate or discharge the obligation of Maker to repay any loans actually
made. Maker may prepay this Note in whole at any time with all accrued interest
to the date of prepayment. So long as Maker is not in default under this Note.
Maker may prepay this Note in part at any time with accrued interest to the date
of prepayment on the principal amount prepaid.
Requests for loans to Maker from Bank and directions as to the
disposition of the proceeds thereof may be given orally (including by telephone)
or in writing to Bank by the officers of Maker or other persons authorize to
borrow on Maker's behalf by borrowing resolutions of Maker's Board of Directors
heretofore delivered to Bank, as such resolutions may be amended or superseded
from time to time, provided that any such amending or superseding resolutions
shall have been certified by the Secretary or an Assistant Secretary of Maker,
and a copy thereof, so certified, shall have been delivered to an officer of
Bank at its office for payment. Bank may conclusively rely on the authorities
contained in said resolutions. Any such loan so made shall be conclusively
presumed to have been made to or for the benefit of Maker and Maker shall be
liable in respect thereof when made in accordance with any such request or
direction, or when deposited to any account of Maker with Bank, even though
persons other than those authorized to borrow on behalf or Maker may have
authority to draw against such account. Bank may rely on any such request or
direction which it believes to be genuine, and Bank shall be fully protected in
so doing without any duty to make further inquiry as to such genuineness or in
otherwise acting in good faith in the premises. By making a request for a loan,
Maker shall be deemed to be representing to Bank that all of the representations
and warranties of Maker set forth in this Note are true and correct as of the
date of such request as if made on and as of such date and shall also be deemed
to be representing and warranting to Bank that on such date Maker is not in
breach of any of its covenants to Bank set forth in this Note or in any other
document or instruments of Maker to Bank and in no event of default has occurred
and is continuing with respect to any Obligations (as defined below).
This Note shall be payable in lawful money of the United States of
America in immediately available funds. Except as otherwise provided herein with
respect to prepayments, all payments on this Note shall be applied to the
payment of accrued interest before being applied to the payment of principal.
Any payment which is required to be made on a day which is not a banking
business day in the City of New York shall be payable on the next succeeding
banking business day and such additional time shall be included in the
computation of interest. In the event that any other Obligations are due at any
time that Bank receives a payment from Maker on account of this Note or any such
other Obligations, Bank may apply such payment to amounts due under this Note or
any such Obligations in such manner as Bank, in its discretion, elects,
regardless of any instructions from Maker to the contrary.
- 1 -
<PAGE>
Maker acknowledges that this Note is an obligation which is payable on
demand and that notwithstanding anything to the contrary in any other
instrument, agreement or other document to which Maker and/or Bank is a party,
the enumeration in any such document of specific events of default, conditions,
and/or covenants relating to the loan evidenced by this Note or to any other
Obligation, shall not be construed to qualify, define or otherwise limit in any
way Bank's right, power or ability, at any time, to make demand for payment of
the principal of and interest on this Note, and Maker agrees that the occurrence
of any event of default or breach of any condition or covenant in any such
document is not the only basis for demand to be made on this Note.
To induce Bank, in its sole discretion, to make loans to Maker: (A)
Maker (if not a natural person) represents, warrants and covenants to Bank that
(i) Maker is duly incorporated and validly existing in good standing under the
laws of the jurisdiction of its formation, with full power and authority to
make, deliver and perform this Note; (ii) the execution, delivery and
performance by Maker of this Note have been duly authorized by all necessary
corporate or other action and do not and will not violate or conflict with its
charter or by-laws or other constituent documents; (iii) this Note has been
fully executed by an authorized officer of Maker; and (B) Maker represents,
warrants and covenants to Bank that (i) the execution, delivery and performance
by Maker of this Note does not and will not violate or conflict with any law,
rule, regulation or order binding on Maker or any agreement or instrument to
which Maker is a party or which may be binding on Maker; (ii) this Note
constitutes a legal, valid, binding and enforceable obligation of Maker; (iii)
no authorization, consent, approval, liens, exemption of or filing or
registration with, any court or government or governmental agency is or will be
necessary to the valid execution, delivery or performance by Maker of this Note;
(iv) the loans evidenced by this Note will be used solely for working capital
purpose; (v) there are no pending or threatened actions, suits or proceedings
against or affecting Maker by or before any court, commission, bureau or other
governmental agency or instrumentality, which, individually or in the aggregate,
if determined adversely to Maker would have a material adverse effect on the
business, properties, operations, or condition, financial or otherwise, of Maker
and (vi) the most recent financial statements of Maker heretofore delivered to
Bank are complete and correct and since the date thereof there has not occurred
any material adverse change in the financial condition or operations of Maker
from that shown on said financial statements.
Bank shall have a continuing lien and/or right of setoff on, and is
hereby granted a security interest in, all deposits (general and special) and
credits with Bank or any Bank Affiliate of any Maker and indorser, and may apply
all or part of the same to any Obligations, at any time or times, without
notice. Bank shall have a continuing lien on, and is hereby granted a security
interest in, all property of every Maker and indorser and the proceeds thereof
held or received by or for Bank or any Bank Affiliate for any purpose, whether
or not for the express purpose of serving as collateral security for the
Obligations. As used in this Note, the term "Bank Affiliate" includes any
individual, partnership or corporation acting as nominee or agent for Bank, and
any corporation or bank which is directly or indirectly owned or controlled by,
or under common control with, Bank. Any notice of disposition of property shall
be deemed reasonable if mailed at least five days before such disposition to the
last address of Maker or indorser on Bank's records. If the Obligations
evidenced by this Note are secured by a security agreement and/or other security
documents which Maker has separately delivered to Bank (whether or not such
documents make specific reference to this Note), reference to such documents is
made for a description of the collateral provided thereby and of the rights of
Maker and Bank therein. The rights and remedies of Bank provided hereunder are
cumulative with the rights and remedies available to Bank under any other
instruments or agreements or under applicable law. As used in this Note, the
term"Obligations" means all amounts payable under this Note and any and all
other indebtedness, obligations and liabilities of Maker to Bank, and all claims
of Bank against Maker, now existing or hereafter arising, direct or indirect
(including participations or any interest of Bank in indebtedness of Maker to
others), acquired outright, conditionally, or as collateral security from
another, absolute or contingent, joint or several, secured or unsecured, matured
or unmatured, monetary or non-monetary, arising out of contract or tort,
liquidated or unliquidated, arising by operation of law or otherwise, and all
extensions, renewals, refundings, replacements and modifications of any of the
foregoing.
In case any principal of or interest on this Note is not paid when due,
each Maker and indorser shall be jointly and severally liable for all costs of
enforcement and collection of this Note incurred by Bank or any other holder of
this Note, including but not limited to reasonable attorney's fees,
disbursements and court costs. In addition, in the event of a default
thereunder, Maker shall pay all reasonable attorneys' fees and disbursements
incurred by Bank in obtaining advice as to its rights and remedies in connection
with such default.
Maker and each indorser hereby separately waive presentment, notice of
dishonor, protest and notice of protest, and any or all other notices or demands
(other than demand for payment) in connection with the delivery, acceptance,
performance, default, endorsement or guarantee of this Note. The liability of
any Maker or indorser hereunder shall be unconditional and shall not be in any
manner affected by any indulgence whatsoever granted or consented to by the
holder hereof, including, but not limited to any extension of time, renewal,
waiver or other modification. Any failure of the holder to exercise any right
hereunder shall not be construed as a waiver of the right to exercise the same
or any other right at any time and from time to time thereafter. Bank or any
holder may accept late payments, or partial payments, even though marked
"payment in full" or containing words of similar import or other conditions,
without waiving any of its rights. No amendment, modification or waiver of any
provision of this Note nor consent to any departure by Maker therefrom shall be
effective irrespective of any course of dealing, unless the same shall be in
writing and signed by Bank, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. This
Note cannot be changed or terminated orally or by estoppel or waiver or by any
alleged oral modification regardless of any claimed partial performance
referable thereto.
Any notice from Bank to Maker or any indorser shall be deemed given
when delivered to Maker or such indorser by hand or when deposited in the United
States mail and addressed to Maker or such indorser at the last address of Maker
or such indorser appearing on Bank's records.
This Note shall be governed by and construed in accordance with the
laws of the State of New York applicable to instruments made and to be performed
wholly within that state. If any provision of this Note is held to be illegal or
unenforceable for any reason whatsoever, such illegality or unenforceability
shall not affect the validity of any other provision hereof.
MAKER AND EACH INDORSER AGREE THAT ANY ACTION , DISPUTE, PROCEEDING,
CLAIM OR CONTROVERSY BETWEEN MAKER OR SUCH INDORSER AND BANK, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT BANK'S
ELECTION, WHICH ELECTION MAY BE
- 2 -
<PAGE>
MADE ANY TIME PRIOR TO THE COMMENCEMENT OF A JUDICIAL PROCEEDING BY BANK, OR IN
THE EVENT OF A JUDICIAL PROCEEDING INSTITUTED BY MAKER OR SUCH INDORSER AT ANY
TIME PRIOR TO THE LAST DAY TO ANSWER AND/OR RESPOND TO A SUMMONS AND/OR
COMPLAINT MADE BY MAKER OR SUCH INDORSER, BE RESOLVED BY ARBITRATION IN
ACCORDANCE WITH THE PROVISIONS OF THIS PARAGRAPH AND SHALL, AT THE ELECTION OF
BANK, INCLUDE ALL DISPUTES ARISING OUT OF OR IN CONNECTION WITH (1) THIS NOTE OR
ANY RELATED AGREEMENTS OR INSTRUMENTS, (2) ALL PAST, PRESENT AND FUTURE
AGREEMENTS INVOLVING MAKER OR SUCH INDORSER AND BANK, (3) ANY TRANSACTION
RELATED TO THIS NOTE AND ALL PAST, PRESENT AND FUTURE TRANSACTIONS INVOLVING
MAKER OR SUCH INDORSER AND BANK, AND (4) ANY ASPECT OF THE PAST, PRESENT OR
FUTURE RELATIONSHIP OR MAKER OF SUCH INDORSER AND BANK. Bank may elect to
require arbitration of any Dispute with Maker or any indorser without thereby
being required to arbitrate all Disputes between Bank and Maker or such
indorser. Any such Dispute shall be resolved by binding arbitration in
accordance with Article 75 of the New York Civil Practice Law and Rules and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"). In
the event of any inconsistency between such Rules and these arbitration
provisions, these provisions shall supersede such Rules. All statutes of
limitations which would otherwise be applicable shall apply to any arbitration
proceeding under this paragraph. In any arbitration proceeding subject to this
paragraph, the arbitration panel (the"arbitrator") is specifically empowered to
decide (by documents only, or with a hearing, at the arbitrator's sole
discretion) pre-hearing motions which are substantially similar to pre-hearing
motions to dismiss and motions for summary adjudication. In any arbitration
proceeding subject to this paragraph, the arbitrator(s) shall be deemed
specifically empowered to decide (by documents only, or with a hearing, at the
arbitrator(s) sole discretion) pre-hearing motions which are substantially
similar to pre-hearing motions to dismiss and motions for summary adjudication.
In any such arbitration proceeding, the arbitrator(s) shall not have the power
or authority to award punitive damages to any party. Judgment upon the award
rendered may be entered in any court having jurisdiction. Whenever an
arbitration is required, the arbitrator(s) shall be selected in the manner
provided in this paragraph. No provision of, nor the exercise of any rights
under, this paragraph shall limit the right of Bank (1) to foreclose against any
real or personal property collateral through judicial foreclosure, by the
exercise of the power of sale under a deed of trust, mortgage or other security
agreement or instrument, pursuant to applicable provisions of the Uniform
Commercial Code, or as otherwise herein provided or pursuant to applicable law,
(2) to exercise self-help remedies including but not limited to setoff and
repossession, or (3) to request and obtain from a court having jurisdiction
before, during or after the pendency of any arbitration, provisional or
ancillary remedies and relief including but not limited to injunctive or
mandatory relief or the appointment of a receiver. The institution and
maintenance of an action or judicial proceeding for, or pursuit of, provisional
or ancillary remedies or exercise of self-help remedies shall not constitute a
waiver of the right of Bank, even if Bank is the plaintiff, to submit the
Dispute to arbitration if Bank would otherwise have such right. Whenever an
arbitration is required under this paragraph, the arbitrator(s) shall be
selected in accordance with the Commercial Arbitration Rules of the AAA, except
as otherwise herein provided. A single arbitrator shall decide any claim of
$100,000 or less and he or she shall be an attorney with at least five years'
experience. Where the claim of any party exceeds $100,000, the Dispute shall be
decided by a majority of three arbitrators, at least two of whom shall be
attorneys (at least one of whom shall have not less than five years' experience
representing commercial banks). The arbitrator(s) shall have the power to award
recovery of all costs and fees (including attorneys' fees, administrative fees,
arbitrator(s) fees, and court costs) to the prevailing party. In the event of
any Dispute governed by this paragraph, each of the parties shall, subject to
the award of the arbitrator(s), pay an equal share of the arbitrator(s) fees.
MAKER AND EACH INDORSER AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN
RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE
STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW
YORK AND ANY ARBITRATION PROCEEDING PURSUANT HERETO SHALL BE CONDUCTED IN NEW
YORK, NEW YORK. MAKER AND EACH INDORSER CONSENT TO AND SUBMIT TO THE EXERCISE OF
JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER, WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
MAKER OR SUCH INDORSER AT ITS ADDRESS SET FORTH BELOW OR TO ANY OTHER ADDRESS AS
MAY APPEAR IN BANK'S RECORDS AS THE ADDRESS OF MAKER OR SUCH INDORSER.
IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
NOTE, BANK, MAKER AND EACH INDORSER WAIVE TRIAL BY JURY, AND MAKER AND EACH
INDORSER ALSO WAIVE (I) THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF
ANY NATURE OR DESCRIPTION, (II) ANY OBJECTION BASED ON FORUM NON CONVENIENS OR
VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
Bank is authorized to fill any blank spaces and to otherwise complete
this Note and correct any patent errors herein.
Allen Field Co., Inc.
-------------------------------------
Name of Maker
By:/s/Andrew Franzone
----------------------------------
Signature of Authorized Signatory
Andrew Franzone Pres.
-------------------------------------
Print Name and Title
320 Broad Hollow Rd. Farmingdale, NY 11735
------------------------------------------
Address for Notices
- 3 -
<PAGE>
[If Maker is not a natural person,
indicate the type of entity below]
The Maker signing above is a:
/ / partnership organized under the laws
of ________________________________________________.
/ / limited partnership organized under the laws
of ________________________________________________.
/ / limited liability partnership organized under the
laws of ___________________________________________.
/ / corporation organized under the laws
of _______________________________________________.
/ / other (specify): ______________________________.
LOANS AND PAYMENTS OF PRINCIPAL
Unpaid
Amount of Amount of Principal Notation
Date Loan No. Loan Principal Paid Balance Made By
---- -------- --------- -------------- --------- --------
<PAGE>
----------------------------------------------------------
To the Lending Officer: Use This Note in Conjunction with
Term Loan Agreement
----------------------------------------------------------
TERM LOAN AGREEMENT PROMISSORY NOTE
$250,000 New York, New York
Date: 7/29/96
FOR VALUE RECEIVED, the undersigned ("Maker") promises
to pay to the order of REPUBLIC NATIONAL BANK OF NEW YORK ("Bank") at its
principal banking office at 452 Fifth Avenue, New York, New York 10018 or
at any of its other banking offices in New York as Bank may designate by
written notice to Maker, the sum of TWO HUNDRED FIFTY THOUSAND DOLLARS,
as set forth below, together with interest from the date hereof on the
unpaid principal of this Note until paid in full at the rate set forth
below.
This Note is executed and delivered to Bank pursuant to
a Term Loan Agreement dated 7/29/96 entered into among Maker, Bank and
any guarantors referred to therein ("Agreement") and is entitled to,
among other things, the benefits, guarantees and security referred to
therein. Upon the occurrence of an Event of Default, as defined in the
Agreement, the principal hereof and accrued interest hereon may be
declared to be or may automatically become forthwith due and payable, in
the manner, upon the conditions and with the effect provided in the
Agreement. This Note may be prepaid to the extent and in the manner set
forth in the Agreement.
The principal amount of this Note shall be payable in
eleven consecutive quarterly installments (subject to acceleration as
hereinafter provided), payable on the last day of each quarter commencing
October 31, 1996. The first eleven principal installments shall each be
in the amount of $12,500. The last principal installment shall be in the
amount of the then unpaid principal balance of this Note and shall be due
and payable on July 31, 1999 (the "Stated Maturity Date") together with
all unpaid interest accrued through that date.
Interest on the unpaid principal of this Note will be
due and payable on each date when all or any portion of the principal of
this Note is due and payable and in addition if the principal amount of
this Note is payable in full on a specified date, interest on the unpaid
principal of this Note will be due and payable on the last day of each
month.
Prior to the date that the entire outstanding principal
amount hereof is due and payable (whether at the Stated Maturity Date or
by acceleration), this Note shall bear interest at a rate (the "Contract
Rate") equal to a fluctuating rate of 1% per annum above the Reference
Rate (as defined below), such rate to change without notice from time to time
with each change in the Reference Rate.
After the entire outstanding principal amount of this
Note becomes due, interest under this Note shall be payable on demand and
shall accrue at a fluctuating rate per annum equal to 1% per annum above
the greater from time to time of (x) the Contract Rate in effect on the
date that the principal became due and (y) the Contract Rate that would
have been in effect from time to time if the principal had not become
due. If Maker is a corporation, interest shall be calculated on the basis
of a 360-day year for actual days elapsed. In no event shall the interest
rate applicable at any time to this Note exceed the maximum rate
permitted by law. As used herein, "Reference Rate" means the rate
established by Bank from time to time at its principal domestic office as
its reference lending rate for domestic commercial loans. Bank may make
loans to customers above, at, or below the Reference Rate.
This Note shall be payable in lawful money of the
United States of America in immediately available funds. All payments on
this Note shall be applied to the payment of accrued interest before
being applied to the payment of principal. Any payment which is required
to be made on a day which is not a banking business day in the City of
New York shall be payable on the next succeeding banking business day and
such additional time shall be included in the computation of interest. In
the event that any other Obligations (as defined below) are due at any
time that Bank receives a payment from Maker on account of this Note or
any such other Obligations of Maker, Bank may apply such payment to
amounts due under this Note or any such other Obligations in such manner
as Bank, in its discretion, elects, regardless of any instructions from
Maker to the contrary.
Bank shall have a continuing lien and/or right of
set-off on, and is hereby granted a security interest in, all deposits
(general and special) and credits with Bank or any Bank Affiliate of any
Maker and indorser, and may apply all or part of the same to any
Obligations (whether contingent or unmatured) of Maker, at any time or
times, without notice. Bank shall have a continuing lien on, and is
hereby granted a security interest in, all property of every Maker and
indorser and the proceeds thereof held or received by or for Bank or any
Bank Affiliate for any purpose, whether or not for the express purpose of
serving as collateral security for the Obligations of Maker. As used in
this Note, the term "Bank Affiliate" includes any individual, partnership
or corporation acting as nominee or agent for Bank, and any corporation
or bank which is directly or indirectly owned or controlled by, or under
common control with, Bank. Any notice of disposition of property shall be
deemed reasonable if mailed at least five days before such disposition to
the last address of Maker or indorser on Bank's records. If the
Obligations evidenced by this Note are secured by a security agreement
and/or other security documents which Maker has separately delivered to
bank (whether or not such documents make specific reference to this
Note), reference to such documents is made for a description of the
collateral provided thereby and of the rights of Maker and Bank therein.
The rights and remedies of Bank provided for hereunder including but not
limited to the right to accelerate Obligations of Maker and to realize on
any security for any such Obligations) are cumulative with the rights and
remedies of Bank available under any other instrument or agreement
1
<PAGE>
or under applicable law. As used in this Note, the term "Obligations" of
a person means all amounts payable under this Note and any and all other
indebtedness, obligations and liabilities of that person to Bank, and all
claims of Bank against such person, now existing or hereafter arising,
direct or indirect (including participations or any interest of Bank in
indebtedness of such person to others), acquired outright, conditionally,
or as collateral security from another, absolute or contingent, joint or
several, secured or unsecured, matured or unmatured, monetary or
non-monetary, arising out of contract or tort, liquidated or
unliquidated, arising by operation of law or otherwise, and all
extensions, renewals, refundings, replacements and modifications of any
of the foregoing. "Person" means any individual partnership, limited
partnership, corporation, association, trust or other entity.
In the case of the occurrence of an Event of Default,
each Maker and indorser shall be jointly and severally liable for all
costs of enforcement and collection of this Note incurred by Bank or any
other holder of this Note, including but not limited to reasonable
attorneys' fees, disbursements and court costs. In addition, in the event
of a default hereunder, Maker shall pay all reasonable attorneys' fees
and disbursements incurred by Bank in obtaining advice as to its rights
and remedies in connection with such default.
Maker and each indorser hereby separately waive
presentment, demand for payment, notice of dishonors, protest and notice
of protest, and any or all other notices or demands in connection with
the delivery, acceptance, performance, default, endorsement or guarantee
of this Note. The liability of any Maker or indorser hereunder shall be
unconditional and shall not be in any manner affected by any indulgence
whatsoever granted or consented to by the holder hereof, including but
not limited to any extension of time, renewal, waiver or other
modification. Any failure of the holder to exercise any right hereunder
shall not be construed as a waiver of the right to exercise the same or
any other right at any time and from time to time thereafter. Bank or any
holder may accept late payments, or partial payments, even though marked
"payment in full" or containing words of similar import or other
conditions, without waiving any of its rights. No amendment, modification
or waiver of any provision of this Note nor consent to any departure by
Maker therefrom shall be effective, irrespective of any course of
dealing, unless the same shall be in writing and signed by Bank, and then
such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. This Note cannot be changed
or terminated orally or by estoppel or waiver or by any alleged oral
modification regardless of any claimed partial performance referable
thereto.
This note shall be governed by and construed in
accordance with the laws of the State of New York applicable to
instruments made and to be performed wholly within that state. If any
provision of this Note is held to be illegal or unenforceable for any
reason whatsoever, such illegality or unenforceability shall not affect
the validity of any other provision hereof.
MAKER AGREES THAT ANY ACTION, DISPUTE, PROCEEDING, CLAIM OR
CONTROVERSY BETWEEN MAKER AND BANK, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT BANK'S ELECTION, WHICH ELECTION
MAY BE MADE AT ANY TIME PRIOR TO THE COMMENCEMENT OF A JUDICIAL PROCEEDING BY
BANK, OR IN THE EVENT OF A JUDICIAL PROCEEDING INSTITUTED BY MAKER AT ANY TIME
PRIOR TO THE LAST DAY TO ANSWER AND/OR RESPOND TO A SUMMONS AND/OR COMPLAINT
MADE BY MAKER, BE RESOLVED BY ARBITRATION IN ACCORDANCE WITH THE PROVISIONS OF
THIS PARAGRAPH AND SHALL, AT THE ELECTION OF BANK, INCLUDE ALL DISPUTES ARISING
OUT OF OR IN CONNECTION WITH (1) THIS NOTE OR ANY RELATED AGREEMENTS OR
INSTRUMENTS, (2) ALL PAST, PRESENT AND FUTURE AGREEMENTS INVOLVING MAKER AND
BANK, (3) ANY TRANSACTION RELATED TO THIS NOTE AND ALL PAST, PRESENT AND FUTURE
TRANSACTIONS INVOLVING MAKER AND BANK, AND (4) ANY ASPECT OF THE PAST, PRESENT
OR FUTURE RELATIONSHIP OF MAKER AND BANK. Bank may elect to require arbitration
of any Dispute with Maker without thereby being required to arbitrate all
Disputes between Bank and Maker. Any such Dispute shall be resolved by binding
arbitration in accordance with Article 75 of the New York Civil Practice Law and
Rules and the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). In the event of any inconsistency between such Rules and
these arbitration provisions, these provisions shall supersede such Rules. All
statutes of limitations which would otherwise be applicable shall apply to any
arbitration proceeding under this paragraph. In any arbitration proceeding
subject to this paragraph, the arbitration panel (the "arbitrator") is
specifically empowered to decide (by documents only, or with a hearing, at the
arbitrator's sole discretion) pre-hearing motions which are substantially
similar to pre-hearing motions to dismiss and motions for summary adjudication.
In any such arbitration proceeding, the arbitrator shall not have the power or
authority to award punitive damages to any party. Judgment upon the award
rendered may be entered in any court having jurisdiction. Whenever an
arbitration is required, the parties shall select an arbitrator in the manner
provided in this paragraph. No provision of, nor the exercise of any rights
under, this paragraph shall limit the right of Bank (1) to foreclose against any
real or personal property collateral through judicial foreclosure, by the
exercise of the power of sale under a deed of trust, mortgage or other security
agreement or instrument, pursuant to applicable provisions of the Uniform
Commercial Code, or otherwise pursuant to applicable law, (2) to exercise
self-help remedies including but not limited to setoff and repossession, or (3)
to request and obtain from a court having jurisdiction before, during or after
the pendency of any arbitration, provisional or ancillary remedies and relief
including but not limited to injunctive or mandatory relief or the appointment
of a receiver. The institution and maintenance of an action or judicial
proceeding for, or pursuit of, provisional or ancillary remedies or exercise of
self-help remedies shall not constitute a wavier of the right of Bank, even if
Bank is the plaintiff, to submit the Dispute to arbitration if Bank would
otherwise have such right. Whenever an arbitration is required under this
paragraph, the arbitrator shall be selected, except as otherwise herein
provided, in accordance with the Commercial Arbitration Rules of the AAA. A
single arbitrator shall decide any claim of $100,000 or less and he or she shall
be an attorney with at least five years' experience. Where the claim of any
party exceeds $100,000, the Dispute shall be decided by a majority of three
arbitrators, at least two of whom shall be attorneys (at least one of whom shall
have not less than five years' experience representing commercial banks). The
arbitrator shall have the power to award recovery of all costs and fees
(including attorneys' fees, administrative
2
<PAGE>
fees, arbitrator's fees, and court costs) to the prevailing party. In the
event of any Dispute governed by this paragraph, each of the parties
shall, subject to the award of the arbitrator, pay an equal share of the
arbitrator's fees.
MAKER AND EACH INDORSER AGREE THAT ANY ACTION, SUIT OR
PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND
PROSECUTED IN THE STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN
NEW YORK COUNTY, NEW YORK AND ANY ARBITRATION PROCEEDING PURSUANT HERETO
SHALL BE CONDUCTED IN NEW YORK, NEW YORK. MAKER AND EACH INDORSER CONSENT
TO AND SUBMIT TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY SUCH
COURT HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENT THAT ALL SUCH SERVICE
OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO MAKER OR SUCH INDORSER
AT ITS ADDRESS SET FORTH BELOW OR TO ANY OTHER ADDRESS AS MAY APPEAR IN
BANK'S RECORDS AS THE ADDRESS OF MAKER OR SUCH INDORSER.
IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR
ARISING OUT OF THIS NOTE, BANK, MAKER AND EACH INDORSER WAIVE TRIAL BY
JURY, AND MAKER AND EACH INDORSER ALSO WAIVE (I) THE RIGHT TO INTERPOSE
ANY SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION, (II) ANY
OBJECTION BASED ON FORUM NON CONVENIENS OR VENUE, AND (III) ANY CLAIM FOR
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
If this Note is executed by more than one person, then
each such person shall be jointly and severally liable on this Note, and
the term "Maker" shall mean each, any or all of such persons.
Bank is authorized to fill in any blank spaces and to
otherwise complete this Note and correct any patent errors herein.
Allen Field Company, Inc.
--------------------------------
Name of Maker
By: /s/ Harry Goodman
---------------------------------
Signature of Authorized Signatory
/s/ HARRY GOODMAN VICE PRESIDENT
--------------------------------
Print Name and Title
/s/ FARMINGDALE NY 11735
--------------------------------
Address for Notices
The Maker signing above is a corporation
organized under the laws of New York.
--- ----
3
<PAGE>
GUARANTY
AND SECURITY AGREEMENT
Date: 7/25/96
SECTION 1. Definitions. The following terms have the following meanings
unless otherwise specified herein:
"Bank" means Republic National Bank of New York, a national banking
association., and its successors and assigns, and any Person acting as agent or
nominee for Republic National Bank of New York and any corporation the stock of
which is owned or controlled directly or indirectly by, or is under common
control with, Republic National Bank of New York and/or Republic New York
Corporation.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, and any
amendments thereto (Title 11, United States Code).
"Borrower", shall mean Allen Field Co., Inc. (if more than one, "Borrower" shall
mean each, any or all of them).
"Claims" shall mean each "claim" as that term is defined under Section 101(4) of
the Bankruptcy Code.
"Collateral" shall mean all property that secures the payment of the
Obligations, and any Proceeds thereof.
"Guaranty" shall mean this Guaranty and Security Agreement.
"Guarantor" shall mean the undersigned (and if more than one, "Guarantor"shall
mean each, any and all of them, jointly and severally).
"Liabilities" shall mean any and all indebtedness, obligations (whether monetary
or non-monetary) and liabilities of Guarantor to the Bank under this Guaranty,
and all Claims thereon.
"Lien" means any lien, security interest, pledge, hypothecation, or other claim
in or with respect to any Security.
"Obligations" shall mean any and all indebtedness, obligations and liabilities
of the Borrower to the Bank, and all Claims of the Bank against the Borrower,
now existing or hereafter arising, direct or indirect (including participations
or any interest of the Bank in indebtedness of the Borrower to others), acquired
outright, conditionally, or as collateral security from another, absolute or
contingent, joint or several, secured or unsecured, matured or not matured,
monetary or non-monetary, arising out of contract or tort, liquidated or
unliquidated, arising by operation of law or otherwise and all extensions,
renewals, refundings, replacements and modifications of any of the foregoing.
"Person" shall mean any natural person, corporation, partnership, trust,
government or other association or legal entity.
"Proceeds" shall have the meaning assigned to that term by the New York Uniform
Commercial Code, as amended, and also means all "proceeds," "products,"
"offspring," "rents" or "profits" of any property, as such quoted terms are used
in the Bankruptcy Code.
"Security" shall mean any property which secures payment or performance of any
of the Liabilities, and all Proceeds thereof.
SECTION 2. Scope of Guaranty. In consideration of any extension of credit or
other financial accommodation heretofore, now or hereafter made by the Bank to
or for the account of the Borrower, whether voluntary or obligatory,
Guarantor hereby absolutely and unconditionally guarantees to the Bank the
prompt and complete payment and performance when due (whether at stated
maturity, by required prepayment, acceleration, or otherwise) of all Obligations
and the performance of each of Borrower's covenants and obligations under all
loan agreements, documents and instruments evidencing or relating to any
Obligations or under which any Obligations may have been issued, created,
assumed, suffered involuntarily, or guaranteed, and all expenses incurred in
collecting or enforcing the same, as more fully set forth below, all of which
conclusively shall be deemed to have been incurred in reliance upon this
Guaranty, as if each of the foregoing were the direct and primary legal
responsibility of Guarantor and not the Borrower.
SECTION 3. Security. As Security for the Liabilities of Guarantor, Guarantor
hereby grants to the Bank a continuing lien upon and security interest in, and
hereby pledges, assigns and transfers to the Bank, all right, title and interest
of Guarantor in and to all deposits (general or special) of Guarantor at any
time maintained with the Bank or any branch, subsidiary or affiliate of the
Bank, wherever located, and any substitutions and all products and Proceeds
thereof, and any other property described below, whether now or hereafter
existing or acquired and wherever located, and any substitutions and all
products and Proceeds (including but not limited to insurance proceeds) thereof:
[mark or initial the applicable boxes]
Accounts, General Intangibles Chattel Paper and Instruments
/ / All Accounts (including, without limitation, all accounts receivable),
General Intangibles (including, without limitation, contract rights and tax
refunds) and all returned or repossessed Goods, all Chattel Paper (including,
without limitation, leases) and Instruments and all interests of Guarantor in
all guarantees, security agreements and other property securing the payment or
performance of obligations under any of the foregoing.
Imported Inventory and Documents
/ / All Imported Inventory, and all Documents (including, without limitation,
all documents of title, transport or otherwise) relating to such Inventory.
Inventory and Documents
/ / All Inventory, of every description (including, without limitation,
Imported Inventory, raw materials, work in process and finished Goods), and all
Documents (including, without limitation, all documents of title, transport or
otherwise) relating to such Inventory.
Equipment
/ / All Equipment of every description and all Accessories thereto.
- 1 -
<PAGE>
Fixtures
/ / All Fixtures of every description and all Accessions thereto located
at ___________________________________________________________________________.
Specific Property
/ / All of the following property: ____________________________________________
_______________________________________________________________________________.
All Property
/ / All property of every description (including, without limitation, all
Accounts, General Intangibles, Chattel Paper, Instruments, Inventory, Documents,
Equipment, Fixtures, Goods and all Accessions to any of the foregoing).
Note: As used above the term "Imported Inventory" means all Inventory
of Guarantor of every description (including, without limitation,
raw materials, work in process and finished goods) imported from
outside the United States, including but not limited to Inventory
consisting of parts or components produced in whole or in part in the
United States and sent outside of the United States for assembly,
completion or packaging, and the terms "Accessions", "Account",
"Chattel Paper", "Document", "Equipment", "Fixtures", "General
Intangibles", "Goods", "Instrument" and "Inventory" have the meanings
assigned to them by the New York Uniform Commercial Code, as amended.
Guarantor further grants to the Bank a continuing lien upon and security
interest in, and hereby pledges and assigns to the Bank, all right, title and
interest of Guarantor in and to any and all moneys, securities and any other
property of Guarantor and the Proceeds thereof, now or hereafter actually or
constructively held or received by or in transit to or from the Bank, including
its branches, subsidiaries and affiliates, wherever located, for any purpose,
including, without limitation, for collection, custody, pledge and transmission.
Guarantor hereby authorizes the Bank to sign and file financing statements at
any time with respect to any Security without the signature of Guarantor.
Guarantor will, however, at any time on request of the Bank, sign financing
statements, trust receipts, security agreements or other agreements or
instruments with respect to any Security. Upon Guarantor's failure to do so, the
Bank is authorized, as the agent of Guarantor, to sign (and file, if Bank deems
appropriate) any such instrument. Guarantor agrees to pay all filing fees and to
reimburse the Bank for all costs and expenses of any kind incurred in any way in
connection with the Security.
The Bank or its nominee may exercise any right of Guarantor with
respect to any Security whether or not any Obligation or Liability is then due
and payable or any default has occurred. In any statutory or non-statutory
proceeding, affecting the Borrower, Guarantor or any Security or any Obligation
or Liability, the Bank or its nominee may, whether or not any Obligation or
Liability is then due and payable or any default shall have occurred, and
regardless of the amount of Obligations or Liabilities, assert, or file a proof
of claim for, the full amount of any such Obligation, Liability or the Security
and vote such claim, for the full amount thereof: (a) for or against any
proposal or resolution; (b) for a trustee or trustees or for a committee of
creditors; or (c) for the acceptance or rejection of any proposed arrangement,
plan of reorganization, wage earners plan, composition or extension, and the
Bank or its nominee may receive any payment or distribution and give acquittance
therefor and may exchange or release any Security. Guarantor agrees that at any
time, whether or not any Obligation or Liability is then due and payable or any
default shall have occurred, the Bank shall have the right to notify any account
debtor (with respect to any Security consisting of Accounts), or the obligor on
any Instrument or other right or claim of Guarantor to any payment which is
Security, to make payment directly to the Bank, whether or not any default shall
have occurred and whether or not Guarantor was theretofore making collections on
such Security, and also to take control of any Proceeds the Bank is entitled to
under Section 9-306 of the New York Uniform Commercial Code. If any Security
consists of Accounts, Instruments or other rights or claims of Guarantor to any
payment, then at the Bank's request Guarantor shall promptly notify (in manner,
form and substance satisfactory to the Bank) all Persons obligated to Guarantor
under any such Accounts, Instruments or other rights or claims of Guarantor to
any payment that the Bank possesses a security interest in such Accounts,
Instruments or other rights or claims of Guarantor to any payment and that all
payments in respect of such Accounts, Instruments or other rights or claims of
Owner to any payment are to be made directly to the Bank. Guarantor shall not
settle, compromise or adjust any disputed amount, or allow any credit, rebate or
discount with respect to any Account, Instrument or other right or claim of
Guarantor to any payment which constitutes Security under this Guaranty. After
the Bank shall have given any notice to an account debtor of the type specified
above, any and all accounts recovered by Guarantor from the account debtor or
other obligor so notified shall be promptly remitted to the Bank, and until so
remitted shall be segregated by Guarantor and held in trust for the Bank.
Any and all stocks, bonds or other securities of Guarantor at any time
held by the Bank hereunder may, without notice, and whether or not an event of
default exists hereunder, be registered in the name of the Bank or its nominee
without disclosing that the Bank is a pledgee. The Bank or such nominee (whether
or not an event of default exists hereunder and regardless of the amount of
Obligations or Liabilities) may, without notice, exercise all voting and
corporate rights at any meeting of any corporation issuing such stocks, bonds or
other securities, and exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to such
stocks, bonds or other securities as if the absolute owner thereof, including
without limitation the right to exchange, at its discretion any and all of such
stocks, bonds or other securities for other stocks, bonds, securities or any
other property upon the merger, consolidation, reorganization, recapitalization
or other readjustment of any corporation issuing the same or upon the exercise
by the issuing corporation or the Bank of any right, privilege or option
pertaining to such stocks, bonds or other securities, and in connection
therewith, to deposit and deliver any and all of such stocks, bonds or
securities with any committee, trustee, depositary, transfer agent, registrar or
other designated agency upon such terms and conditions as it may determine, all
without liability except to account for property actually received by it. If
Guarantor, as registered holder of any security, shall become entitled to
receive or does receive any stock certificate, option or right, whether as an
addition to, in substitution of, or in exchange for, such security, or
otherwise, Guarantor agrees to accept same as the Bank's agent and to hold same
in trust for the Bank, and to forthwith deliver the same to the Bank in the
exact form received, with Guarantor's endorsement when necessary, to be held by
the Bank as Security.
Guarantor recognizes that the Bank may be unable to effect a public
sale of any securities which may constitute a portion of the Security by reason
of certain prohibitions contained in the Securities Act of 1933 and applicable
state securities laws and instead may resort to one or more private sales of
such Security to a restricted group of purchasers who would be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. Guarantor
recognizes and agrees that, because of this restriction, sales of securities may
result in prices and other terms less favorable to the seller than if the
disposition were made pursuant to a public sale and, notwithstanding such
circumstances, agrees that any such private or
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<PAGE>
limited sale or sales shall be deemed to have been made in a commercially
reasonable manner. The Bank shall be under no obligation to delay a sale of any
of the securities constituting part of the Security for the period of time
necessary to permit the issuer of such securities to register them for public
sale under the Securities Act of 1933 or under applicable state securities laws.
To the extent permitted by applicable law, the Bank or its nominee is
hereby given a right of setoff for the amount of the Liabilities upon any of and
all said deposits and any credits of Guarantor with, and any and all claims of
Guarantor against, the Bank at any time existing and the Bank is hereby
authorized to setoff and apply such deposits, credits and claims, without prior
notice or demand, to the Liabilities in such order and amounts as the Bank may
elect, although such Liabilities may be contingent or unmatured.
Guarantor shall, upon request of the Bank, assemble the Security
and make it available to the Bank at a place to be designated by the Bank which
is reasonably convenient to the Bank and Guarantor. The Bank will give Guarantor
notice of the time and place of any public sale of tile Security or of the time
after which any private sale or any other intended disposition thereof is to be
made by sending notice, as provided below, at least five days before the time of
the sale or disposition, which provisions for notice Guarantor agrees are
reasonable. No such notice need be given by the Bank with respect to Security
which is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market. Guarantor shall remain liable to the
Bank for the payment of any deficiency with interest thereon at the highest rate
applicable to the Obligations, or if no rate is specified with respect to such
Obligations, at the then legal rate of interest.
Guarantor will do all such other acts and things and will execute and
deliver all such other instruments and documents, including further security
agreements, pledges, endorsements, assignments, and notices as the Bank may
reasonably deem necessary or advisable from time to time in order to perfect and
preserve the Liens created by this Guaranty and will, at its own costs and
expense, cause such Lien to be perfected and continue to be perfected and to be
and remain prior to all other Liens. The Banks, acting through its officers,
employees and authorized agents, is hereby irrevocably appointed the
attorney-in-fact of Guarantor to do, at Guarantor's expense, all acts and things
which the Bank may reasonably deem necessary or advisable to preserve, perfect,
continue to perfect and/or maintain the priority of such Liens, including the
signing of financing, continuation or other similar statements and notices on
behalf of Guarantor, and which Guarantor is required to do by the terms of this
Guaranty. Guarantor hereby authorizes the Bank to sign and file financing
statements with respect to the Security without the signature of Guarantor.
Guarantor shall pay all filing fees for financing statements with respect to the
Security.
SECTION 4. Reinstatement. If after receipt of any payment of, or proceeds of
Security applied (or intended to be applied) to the payment of, all or any part
of the Obligations, the Bank is for any reason compelled to surrender or
voluntarily surrenders, such payment or proceeds to any person, (a) because such
payment or application of proceeds is or may be avoided, invalidated, declared
fraudulent, set aside, determined to be void or voidable as a preference,
fraudulent conveyance, impermissible setoff or a diversion of trust funds; or
(b) for any other reason, including without limitation (i) any judgment, decree
or order of any Court or administrative body having jurisdiction over the Bank
or any of its property, or (ii) any settlement or compromise or any such claim
effected by the Bank with any such claimant (including the Borrower), then the
Obligations or part thereof intended to be satisfied shall be reinstated and
continue and this Guaranty shall continue in full force as if such payment or
proceeds had not been received by the Bank, notwithstanding any revocation
thereof or the cancellation of any note or other instrument evidencing any
Obligation or otherwise; and Guarantor shall be liable to pay to the Bank, and
hereby does indemnify the Bank and hold the Bank harmless for, the amount of
such payment or proceeds so surrendered and all expenses (including all
attorneys' fees, court costs and expenses attributable thereto) incurred by the
Bank in the defense of any claim made against the Bank that any payment or
proceeds received by the Bank in respect of all or any part of the Obligations
must be surrendered. The provisions of this Section 4 shall survive the
termination of this Guaranty, and any satisfaction and discharge of the Borrower
by virtue of any payment, court order or any federal or state law.
SECTION 5. Waiver. Guarantor hereby waives (a) notice of acceptance of
this Guaranty and all notice of the creation, extension or accrual any of the
Obligations; (b) presentment, demand for payment, notice of dishonor, and
protest; (c) notice of any other nature whatsoever, except for notices
specifically provided for in this Guaranty or which may not be waived under
applicable law; (d) any requirement that the Bank take any action whatsoever
against the Borrower or any other party or file any claim in the event of the
bankruptcy of the Borrower; or (e) failure to protect, preserve or resort to any
Collateral or to exercise or enforce the Bank's rights under any other
guaranties of or security for the Obligations; and Guarantor further agrees that
this Guaranty will not be discharged (subject to the provisions contained in
Section 11) except by complete performance of all Obligations of the Borrower
and the Liabilities of Guarantor hereunder.
SECTION 6. Consent. Guarantor hereby consents that from time to time, and
without further notice to or consent of Guarantor, the Bank may take any
or all of the following actions without diminishing, releasing or
otherwise affecting the liability of Guarantor to pay and perform under
this Guaranty: (a) extend, renew, modify, compromise, settle or release
the Obligations (including without limitation any increase or decrease in
the interest rate); (b) release or compromise any liability of any party
or parties with respect to Obligations; (c) release its security interest
in any or all of the Collateral or exchange, surrender, or otherwise deal
with the Collateral as the Bank may determine; or (d) exercise or refrain
from exercising any right or remedy of the Bank against any person or
property.
SECTION 7. Guaranty Absolute. The liability of Guarantor under this
Guaranty shall be absolute and unconditional irrespective of any lack of
validity, regularity or enforceability of the Obligations or any note,
instrument or agreement evidencing the same or relating thereto, the
acceptance of additional guarantees or collateral or the termination, by
operation of law or otherwise, of the liability of anyone with respect to
the Obligations, or any other circumstance which might otherwise
constitute a defense available to, or a discharge of the Borrower.
SECTION 8. COMPLETE WAIVER OF SUBROGATION. NOTWITHSTANDING ANY PAYMENT OR
PAYMENTS MADE BY GUARANTOR HEREUNDER, OR ANY SETOFF OR APPLICATION BY THE BANK
OF THE SECURITY OR OF ANY CREDITS OR CLAIMS, GUARANTOR WILL NOT ASSERT OR
EXERCISE ANY RIGHTS OF THE BANK OR GUARANTOR AGAINST THE BORROWER TO RECOVER THE
AMOUNT OF ANY PAYMENT MADE BY GUARANTOR TO THE BANK HEREUNDER OR UNDER ANY OTHER
GUARANTEE BY WAY OR SUBROGATION, REIMBURSEMENT, CONTRIBUTION, INDEMNITY, OR
OTHERWISE ARISING BY CONTRACT OR OPERATION OF LAW, AND GUARANTOR SHALL HAVE NO
RIGHT OF RECOURSE TO OR ANY CLAIM AGAINST ANY ASSETS OR PROPERTY OF THE
BORROWER, WHETHER OR NOT THE OBLIGATIONS OF THE BORROWER HAVE BEEN SATISFIED,
ALL OF SUCH RIGHTS BEING HEREIN EXPRESSLY WAIVED BY GUARANTOR. If there is more
than one Guarantor, each Guarantor agrees not to seek contribution from any
other Guarantor until all the Obligations shall have been paid in full. If any
amount shall nevertheless be paid to a Guarantor by Borrower or another
Guarantor such amount shall be held in trust for the benefit of the Bank and
shall forthwith be paid to the Bank to be credited and applied to the
Obligations, whether matured or unmatured. The provisions of this Section 8
shall survive the termination of this Guaranty, and the satisfaction and
discharge of the Borrower by virtue of any payment, court order or any federal
or state law.
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<PAGE>
SECTION 9. Expenses. Guaranty hereby agrees to pay any and all expenses
incurred by the Bank in enforcing any rights under this Guaranty or in defending
any of its rights or any amounts received hereunder. Without limiting the
foregoing, Guarantor agrees that whenever any attorney is used by the Bank to
obtain payment hereunder, to advise it as to its rights, to adjudicate the
rights of the parties hereunder or for the defense of any of its rights or
amounts received hereunder, the Bank shall be entitled to recover all attorneys'
fees, court costs, and expenses attributable thereto.
SECTION 10. Binding Effect. Except to the extent it maybe terminated in
accordance with Section 11, this Guaranty shall remain in full force terms,
notwithstanding any and effect and shall be binding upon Guarantor, its
successors and assigns, in accordance with its increase, decrease or change in
the partners of Guarantor, if it should be a partnership, or the merger,
consolidation, or reorganization of Guarantor, if it be a corporation, or any
other change concerning the form, structure or substance of any such entity.
SECTION 11. Continuing Guaranty; Termination. This Guaranty is a continuing
guaranty, which shall remain in effect until notice of termination in writing
from Guarantor is actually received by the Bank at the Bank's address set forth
below. Such termination will be effective only with respect to all Obligations
incurred or contracted by the Borrower or acquired by the Bank after the date on
which such notice is so received, but this Guaranty shall remain in full force
and effect as to all Obligations existing at the date of receipt of such notice,
including all renewals, compromises, modifications, extensions and other
amendments relating thereto, all interest thereon and collection expenses
therefor, until full payment of such Obligations to the Bank.
SECTION 12. Obligations Deemed to Become Due. If the Borrower or Guarantor
makes an assignment for the benefit of creditors or a trustee or receiver is
appointed for the Borrower or Guarantor or for any of its property; or any
proceeding by or against the Borrower or Guarantor (or any other guarantor),
under any bankruptcy, reorganization, arrangement of debt, insolvency,
readjustment of debt, receivership, liquidation or dissolution law or statute is
commenced; or Guarantor fails to furnish to the Bank such financial information
concerning Guarantor as the Bank may from time to time request; or Bank shall in
good faith determine that there has been a material adverse change in
Guarantor's or the Borrower's net worth or in good faith deem itself insecure
with respect to Guarantor's or the Borrower's financial condition or ability to
pay the Liabilities or Obligations, as the case may be, then all Obligations,
regardless of their terms, for the purposes of this Guaranty, together with all
Liabilities, shall be immediately due and payable, notwithstanding the absence
of any default by the Borrower under any of the Obligations.
SECTION 13. Assignment. The Bank may, without notice, assign the Obligations,
in whole or in part, and each successive assignee of the Obligations so assigned
may enforce this Guaranty for its own benefit with respect to the Obligations so
assigned.
SECTION 14. Notices. Each notice or other communication hereunder shall be in
writing, shall be sent by messenger, by first class mail or by facsimile
transmitter or tested telex, and shall be effective when received, and shall be
sent as follows:
If to the Guarantor, to the address set forth below its
signature or such other address as it may designate, by written notice to
the Bank as herein provided or such other address as may appear in the
records of the Bank.
If to the Bank, to the following address:
Republic National Bank of New York
452 Fifth Avenue
New York, New York 10018
Attention: Loan Department
or such other address as it may designate, by written notice to the Guarantor as
herein provided.
SECTION 15. Other Guarantees; Amendments. The execution and delivery
hereafter to the Bank by Guarantor of a new instrument of guarantee shall not
terminate, supersede or cancel this instrument, unless expressly provided
therein, and this instrument shall not terminate, supersede or cancel any
instrument of guarantee previously delivered to the Bank by Guarantor, and all
rights and remedies of the Bank hereunder or under any instrument of guarantee
hereafter or heretofore executed and delivered to the Bank by Guarantor shall be
cumulative and may be exercised singly or concurrently. This Guaranty may be
amended only by a writing executed by Guarantor and a duly authorized officer of
the Bank.
SECTION 16. No Waiver; Cumulative Remedies. No delay on the part of the
Bank in exercising any of its options, powers or rights, or partial or single
exercise thereof, shall constitute a waiver of the thereof. NO WAIVER OF ANY
PROVISION OF THIS GUARANTY IS EFFECTIVE UNLESS MADE IN WRITING AND EXECUTED BY A
DULY AUTHORIZED OFFICER OF THE BANK. All rights and remedies hereunder are
cumulative and may be exercised singly or concurrently.
SECTION 17. Statute of Limitations. Any acknowledgment, new promise, payment of
principal or interest or other act by the Borrower or others with respect to the
obligations shall be deemed to be made as agent of Guarantor, and shall, if the
statute of limitations in favor of Guarantor against the Bank shall have
commenced to run, toll the running of such statute of limitations, and if such
statute of limitations shall have expired, prevent the operation of such
statute.
SECTION 18. Governing Law; Consent to Jurisdiction; Service of Process.
This Guaranty shall be governed by and construed in accordance with the laws of
the State of New York made and to be performed wholly within that State.
Guarantor hereby consents to the jurisdiction of the courts of the State of New
York and the courts of the United States of America for the Southern District of
New York and consents that any action or proceeding hereunder may be brought in
such courts, and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same; and authorizes the service of process on Guarantor by registered or
certified mail sent to its address as set forth in Section 14.
SECTION 19. RIGHT OF BANK TO ARBITRATE DISPUTES.
(a) GUARANTOR AGREES THAT ANY ACTION, DISPUTE, PROCEEDING, CLAIM OR
CONTROVERSY BETWEEN OR AMONG GUARANTOR AND THE BANK WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT THE
BANK'S ELECTION, WHICH ELECTION MAY BE MADE AT ANY TIME PRIOR TO THE
COMMENCEMENT OF A JUDICIAL PROCEEDING BY THE BANK, OR IN THE EVENT OF
A JUDICIAL PROCEEDING INSTITUTED BY GUARANTOR AT ANY TIME PRIOR TO THE
LAST DAY TO ANSWER AND/OR RESPOND TO A SUMMONS AND/OR COMPLAINT MADE
BY GUARANTOR, BE RESOLVED BY ARBITRATION IN NEW YORK, NEW
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<PAGE>
YORK IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 19 AND
SHALL, AT THE ELECTION OF THE BANK, INCLUDE ALL DISPUTES ARISING
OUT OF OR IN CONNECTION WITH (I) THIS GUARANTY OR ANY RELATED
AGREEMENTS OR INSTRUMENTS, (II) ALL PAST, PRESENT AND FUTURE
AGREEMENTS INVOLVING GUARANTOR AND THE BANK, (III) ANY
TRANSACTION CONTEMPLATED HEREBY AND ALL PAST, PRESENT AND FUTURE
TRANSACTIONS INVOLVING GUARANTOR AND THE BANK, AND (IV) ANY
ASPECT OF THE PAST, PRESENT OR FUTURE RELATIONSHIP OF GUARANTOR
AND THE BANK. Bank may elect to require arbitration of any such
Dispute with Guarantor without thereby being required to
arbitrate all Disputes between the Bank and Guarantor. Any such
dispute shall be resolved by binding arbitration in
accordance with Article 75 of the New York Civil Practice Law
and Rules and the commercial arbitration rules of the American
arbitration association ("AAA'). In the event of any
inconsistency between such Rules and these arbitration
provisions, these provisions shall supersede such Rules. All
statutes of limitations which would otherwise be applicable
shall apply to any arbitration proceeding under this subsection
19(a). In any arbitration proceeding subject to these
provisions, the arbitration panel (the "arbitrator") is
specifically empowered to decide (by documents only, or with a
hearing, at the arbitrator's sole discretion) pre-hearing
motions which are substantially similar to pre-hearing motions
to dismiss and motions for summary adjudication. In any such
arbitration proceeding, the arbitrator shall not have the power
or authority to award punitive damages to any party. Judgment
upon the award rendered may be entered in any court having
jurisdiction. Whenever an arbitration is required, the parties
shall select an arbitrator in the manner provided in subsection
19(d).
(b) No provision of, nor the exercise of any rights under, subsection 19(a)
shall limit the right of any party (i) to foreclose against any real or
personal property collateral through judicial foreclosure, by the
exercise of a power of sale under a deed of trust, mortgage or other
security agreement or instrument, pursuant to applicable provisions of
the Uniform Commercial Code, or otherwise pursuant to applicable law,
(ii) to exercise self help remedies including but not limited to setoff
and repossession, or (iii) to request and obtain from a court having
jurisdiction before, during or after the pendency of any arbitration,
provisional or ancillary remedies and relief including but not limited
to injunctive or mandatory relief or the appointment of a receiver. The
institution and maintenance of an action or judicial proceeding for, or
pursuit of, provisional or ancillary remedies or exercise of self help
remedies shall not constitute a waiver of the right of the Bank, even
if the Bank is the plaintiff, to submit the Dispute to arbitration if
the Bank would otherwise have such right.
(c) The Bank may require arbitration of any Dispute(s) concerning the
lawfulness, unconscionableness, propriety, or reasonableness of any
exercise by the Bank of its right to take or dispose of any Collateral
or its exercise of any other right in connection with Collateral
including, without limitation, judicial foreclosure, exercising a power
of sale under a deed of trust or mortgage, obtaining or executing a
writ of attachment, taking or disposing of property with or without
judicial process pursuant to Article 9 of the Uniform Commercial Code
or otherwise as permitted by applicable law, notwithstanding any such
exercise by the Bank.
(d) Whenever an arbitration is required under subsection 19(a), the
arbitrator shall be selected, except as otherwise herein provided, in
accordance with the Commercial Arbitration Rules of the AAA. A single
arbitrator shall decide any claim of $100,000 or less and he or she
shall be an attorney with at least five years' experience. Where the
claim of any party exceeds $100,000, the Dispute shall be decided by a
majority vote of three arbitrators, at least two of whom shall be
attorneys (at least one of whom shall have not less than five years'
experience representing commercial banks).
(e) In the event of any Dispute governed by this Section 19, each of the
parties shall, subject to the award of the arbitrator, pay an equal
share of the arbitrator's fees. The arbitrator shall have the power to
award recovery of all costs and fees (including attorneys' fees,
administrative fees, arbitrator's fees and court costs) to the
prevailing party.
SECTION 20. Severability. If any one or more of the provisions contained
in this Guaranty or any document executed in connection herewith shall be
invalid, illegal or unenforceable in any respect under any applicable
law, the validity, legality and enforceability of the remaining
provisions contained herein shall not (to the full extent permitted by
law) in any way be affected or impaired.
SECTION 21. Headings. The descriptive headings used in this Guaranty are for
convenience only and shall not be deemed to affect the meaning or construction
of any provision hereof.
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<PAGE>
SECTION 22. WAIVER OF TRIAL BY JURY. EACH OF THE BANK AND GUARANTOR HEREBY
WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR
AGAINST IT ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR
IN ANY CONNECTED WITH THIS GUARANTY OR THE OBLIGATIONS.
SECTION 23. WAIVER OF CERTAIN OTHER RIGHTS. GUARANTOR HEREBY WAIVES THE RIGHT TO
INTERPOSE ANY DEFENSE BASED UPON ANY CLAIMS OF LACHES OR SET-OFF OR COUNTERCLAIM
OF ANY NATURE OR DESCRIPTION, ANY OBJECTION BASED ON FORUM NON CONVENIENS OR
VENUE, AND ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
IN WITNESS WHEREOF, the Guarantor(s) has/have executed this Guaranty and
Security Agreement.
Electronic Hardware Corp.
[SEAL]
X /s/ Harry Goodman
--------------------------------------
14 ARDSLEY PL. Address
--------------------------------------
ROCKVILLE CTR. NY 11570
--------------------------------------
Address
--------------------------------------
--------------------------------------
Address
--------------------------------------
[Individual Acknowledgment(s)]
STATE OF NEW YORK
COUNTY OF Suffolk
On this 22 day of July, 1996, before me personally
appeared Harry Goodman, and ______________, to me known, and known to me
to be the individual(s) described in and who executed the foregoing
instrument and (t)(s)he(y) duly acknowledged to me that (t)(s)he(y)
executed the same.
/s/ Lena Christie
--------------------------------------
Notary Public
[STAMP]
[Partnership Acknowledgment]
STATE OF NEW YORK
COUNTY OF __________
On this ___ day of _________, 19__, before me
personally appeared __________________, and ________________, to me
known, and known to me to be the members of ____________________________,
the partnership mentioned and described in and which executed the
foregoing instrument, and the said members duly acknowledged to me that
they executed said instrument for and on behalf of and with the authority
of the said partnership for the uses and purposes therein mentioned.
--------------------------------------
Notary Public
[Corporate Acknowledgment]
STATE OF NEW YORK
COUNTY OF __________
On this ___ day of _________, 19__, before me
personally came ____________________, and __________________, to me
known, who, being duly sworn, deposes and says that (t)(s)he(y) is/are
the ___________________________ and the ______________________ of
___________________________, the corporation described in and which
executed the above instrument; that (t)(s)he(y) know(s) the seal of the
corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation and (t)(s)he(y) signed his (her) (their) name(s) by like
order.
--------------------------------------
Notary Public
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<PAGE>
SECRETARY'S CERTIFICATE
I, Harry Goodman, do hereby certify as follows:
1. I am the duly elected, qualified and acting Secretary of ALLEN
FIELD, a NY corporation (the "Corporation") and as such
Secretary have the care and custody of the corporate books and
records, have personal knowledge of the matters set forth
herein, and have authority to make this Certificate for and on
behalf of the Corporation.
2. At a special meeting of the directors of the Corporation, called
in accordance with the provisions of the By-Laws of the
Corporation and held on JULY 22, 1996, the following resolutions
were adopted by the unanimous vote or consent of all the
directors.
WHEREAS, this Corporation has a definite, important and direct
financial interest in the business of _____________________________
(hereinafter referred to as the "Borrower") and the successful
operation of Borrower's business is in furtherance of the best
interests, welfare and financial advantage of this Corporation; and
WHEREAS, to induce Republic National Bank of New York
(hereinafter referred to as the "Bank") hereafter to extend
credit or other financial accommodations to Borrower upon such
terms and conditions as may be required by the Bank.
IT IS, THEREFORE, RESOLVED, that this Corporation shall guarantee
payment to the Bank of any and all obligations of Borrower to the Bank,
whether now existing or hereafter incurred; and
FURTHER RESOLVED, that this Corporation shall waive the right of
trial by jury with respect to any dispute arising under such
guarantee and any related instrument of guaranty; and
FURTHER RESOLVED, that any officer of this Corporation be, and
each of them hereby is, authorized and directed to execute, and
the Secretary or any Assistant Secretary of this Corporation is
hereby authorized and directed to attest and to affix the seal
of this Corporation to instruments of guaranty and other
documents incident thereto, in the form required by the Bank.
3. I further certify that the foregoing resolutions remain in full
force and effect and have not been rescinded or modified in any
manner whatsoever.
4. I have examined the stock books, stock transfer books and other
records of the Corporation and know by virtue thereof and of my
own knowledge that the following (is) (are) the holder(s) of all
of the outstanding shares of stock of this corporation entitled
to vote thereon.
Name(s) of Shareholder(s) No of Shares Owned
------------------------- -------------------
A. Franzone 1/3
------------------------- -------------------
H. Goodman 1/3
------------------------- -------------------
D. Kassel 1/3
------------------------- -------------------
IN WITNESS WHEREOF, I have set my hand and the seal of Allen Field Co., at
______________________ this 22 day of July, 1996.
[SEAL]
/s/ Harry Goodman
--------------------------------------
Secretary
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<PAGE>
SHAREHOLDERS' CONSENT TO GUARANTY
The undersigned represent and warrant to Republic National Bank
of New York (the "Bank") that they are the holders and owners of all of
the outstanding shares of ALLEN FIELD CO INC., a NY corporation (the
"Corporation") (owning the (respective) number(s) of shares set opposite
their respective signatures below), and do hereby consent to and approve
of the adoption by the Board of Directors of the Corporation of the
resolutions described in the foregoing certificate and do further
specifically consent to and approve of the guarantying by the Corporation
of any and all of the obligations of __________________ to the Bank, and
in connection therewith, further hereby specifically consent to and
approve of the grant of a security interest by the Corporation in its
property to secure any and all of its obligations under such guaranty and
the execution and delivery, from time to time, by the Corporation to the
Bank of agreements of guaranty and security and other documents which
shall be required by the Bank to effectuate the purpose of such
resolutions.
Dated: JULY 19, 19__
Signature of Stockholders No of Shares
------------------------- -------------------
Andrew Franzone 1/3
------------------------- -------------------
Harry Goodman 1/3
------------------------- -------------------
David Kassel 1/3
------------------------- -------------------
------------------------- -------------------
STATE OF NEW YORK )
) :ss.:
COUNTY OF NEW YORK )
On this 25 day of July, 1996, before me personally
appeared A. Franzone, H, Goodman & D. Kassel to me known and known to me
to be the individuals described in and who executed the foregoing
instrument, and they duly acknowledged that they executed the same.
/s/ Lena Christie
--------------------------------------
Notary Public
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<PAGE>
TERM LOAN AGREEMENT
Loan Agreement, dated July 29, 1996 among Electronic Hardware
Corporation with its principal place of business at Farmingdale, New York
("Borrower"), each guarantor ("Guarantor") identified by its execution below
("Borrower" and "Guarantor(s)" collectively referred to as "Obligors"), and
REPUBLIC NATIONAL BANK OF NEW YORK, a national banking association ("Bank")
having an office at 452 Fifth Avenue, New York, New York 10018.
WHEREAS, Borrower has applied to the Bank for a loan in the principal
amount of $500,000, the proceeds of which shall be used for the purpose of
Working Capital ("the Loan").
The Bank has agreed to make the Loan upon the following terms and
conditions:
(1) The Note; Rate of Interest; and Manner of Repayment.
a. The Loan shall bear interest prior to default at a
variable rate per annum as follows: 1% per annum above such per annum
rate of interest as is established by the Bank from time to time at its
principal domestic office as its reference lending rate for domestic
commercial loans, but in no event higher than the maximum rate permitted
by applicable law;
b. Principal on the Loan shall be paid in eleven consecutive
equal quarterly installments of $25,000 each and a final installment in the
amount of the remaining unpaid principal;
c. The time, place and mode of payments and method of
computing interest are described in the term loan agreement promissory
note ("Note") evidencing the Loan, substantially in the form of Exhibit A
hereto; and
d. Borrower shall have the right, upon 10 days prior written
notice, to prepay the Loan, in whole or in part, without penalty, in an amount,
if the Loan is repayable in installments, equal to at least an installment with
all accrued interest on the amount so prepaid. Prepayments shall be applied to
installments in inverse order of maturity.
(2) Representations and Warranties.
To induce the Bank to enter into this Agreement and to make
the Loan, each Obligor, jointly and severally, represents and warrants to the
Bank, that:
a. Validity; Due Authorization. Each Obligor (other than an
Obligor which is an individual), (i) is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation; (ii) is duly qualified and in good standing in every
jurisdiction in which it presently engages in business and in which such
qualification is required; (iii) has the power, authority and legal right to
own, lease and enjoy undisturbed the assets of its business and engage in
business as now conducted; (iv) has the power, authority and legal right to
enter into and execute this Agreement, the Note, the Guaranty referred to herein
and any security agreements ("Security Agreements") or other agreements
furnished in connection with the Loan; and (v) has no subsidiaries, except those
listed on Exhibit B hereto, and in each instance it owns all of the outstanding
capital stock of such subsidiaries;
b. Financial Statements Accurate; No Change. The financial
statements of each Obligor previously delivered to the Bank, whether or not in
connection with this Loan, are the most recently available financial statements
and are complete and correct and present fairly the financial condition of that
entity and reflect every liability (whether direct or contingent), and there has
been no material adverse change in the financial condition of such Obligor since
the date of such financial statements;
c. Other Agreements. The execution, delivery and performance
of this Agreement will not violate any other indenture or other agreement nor
any law, order, rule or regulation of any government instrumentality applicable
to each Obligor or by which its property is bound nor will it result in the
creation or imposition of any other lien except for those being created by any
agreement granting a security interest or pledge related hereto;
d. Priority of Liens. Any security interests created as
Collateral for the Loan constitute valid, first and prior perfected liens in
favor of the Bank;
e. Litigation. There are no suits or proceedings, pending or
threatened, against any Obligor or affecting any of its properties (of which
such Obligor has any knowledge) except those disclosed in writing to the Bank;
f. Taxes. Each Obligor has filed all federal, state and local
income tax returns, including those for corporate franchise taxes, and has paid
all taxes or assessments due thereon;
[end of page]
<PAGE>
g. ERISA. Each Obligor, if required, is in compliance in every
material respect with the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and regulations or published
interpretations thereof and has not had a Reportable Event occur with respect to
any Plans as such terms are defined in ERISA;
h. Federal Reserve Regulations. No Obligor is engaged
principally in or has an important activity in the business of extending credit
for the purpose of purchasing or carrying "margin stock" (as defined in
Regulation U of the Board of Governors of the Federal Reserve System), nor will
any part of the proceeds of this Loan be used, now or ultimately, to purchase or
carry such stock or extend such credit or violate in any way Regulations G, T, U
or X of such Board of Governors;
i. Withholding Taxes. Proper and accurate amounts have been
withheld by each Obligor from its employees for all periods in full and complete
compliance with Social Security, unemployment withholding and other applicable
federal and state tax and other laws; and proper and accurate federal and state
returns have been filed by each Obligor for all periods for which returns were
due with respect to employee income tax withholding, Social Security and
unemployment taxes, and the amounts shown thereon to be due and payable have
been paid in full or adequate provision therefor is included in the books of
each Obligor.
j. Solvency. Each Obligor is Solvent prior to and after giving
effect to the consummation of the transactions contemplated by this Agreement.
("Solvency" is defined to mean that (i) the fair market value of all of its
property is in excess of the total amount of its debts (including contingent
liabilities); (ii) it is able to pay its debts as they mature; (iii) it does not
have unreasonably small capital for the business in which it is engaged or for
any business or transaction in which it is about to engage; and (iv) it is not
"insolvent" as such term is defined in Section 101(31) of the Federal Bankruptcy
Code);
k. Title to Properties. Each Obligor has good and marketable
fee simple title (subject to immaterial exceptions which do not render title
unmarketable or impair the use thereof) to all of its real properties and good
title to all other properties and assets in each case free and clear of all
Liens except Liens listed on Exhibit C hereto or Liens in favor of the Bank
("Liens" is defined to mean any charge, lien, mortgage, pledge, security
interest or other encumbrances of any nature whatsoever upon, of, or in property
or other assets of any Obligor, whether absolute or conditional, voluntary or
involuntary, whether created pursuant to agreement, arising by force of statute,
by judicial proceeding or otherwise); and
l. Environmental. None of the real property owned or leased by
any Obligor contains any toxic or hazardous materials or, to the knowledge of
any Obligor, ever contained or was used for the storage of such materials, and
each Obligor and such properties are in compliance with all applicable
environmental laws and regulations.
(3) Affirmative Covenants. Each Obligor (other than an Obligor that is
an individual) covenants and agrees that, from the date hereof until the full
satisfaction of the obligations under this Agreement and the Note:
a. Corporate Existence and Properties. It shall preserve,
protect, renew and keep in full force and effect its existence, rights,
licenses, permits, patents, trademarks, trade names and franchises; shall comply
with all laws and regulations applicable to it; shall not materially alter the
nature or scope of business as presently conducted by it; and shall preserve,
repair and maintain all property utilized in the conduct of its business;
b. Insurance. Maintain with financially sound insurers
insurance on its properties against such risks as fire, public liability and
lack of fidelity by its employees, all as is customary with companies in similar
businesses or as reasonably required by the Bank and each policy shall name the
Bank as a loss payee or additional assured and provide that it can not be
amended, modified or cancelled without 30 days prior written notice to the Bank;
c. Financial Statements and Other Information. Furnish to the
Bank the following financial information: (i) not later than 120 days after the
end of its fiscal year its balance sheet and statements of income and sources
and use of funds prepared in accordance with generally accepted accounting
principles consistently applied and audited in a manner satisfactory to the Bank
by independent certified public accountants acceptable to the Bank, all such
statements in the case of a corporate Obligor having subsidiaries to be
consolidated and consolidating statements; (ii) not later than 90 days after the
end of each quarter balance sheets and statements of income for such period,
their accuracy certified in a manner satisfactory to the Bank by the chief
financial officer; and (iii) with each set of statements described above the
certificate of the chief financial officer that no event which, alone or with
notice, the passage of time, or both, would constitute an Event of Default has
occurred or is continuing;
d. Access. Upon written request with reasonable notice and due
regard to borrowers need for security, the Bank's representatives shall be
permitted access to any or all of such Obligor's properties and financial
records, to make extracts from such records and to discuss the business,
finances and affairs with its officers;
e. Notices. It shall promptly give written notice to the Bank
of: (i) the details of any Reportable Events as defined in ERISA which has
occurred; (ii) the occurrence of any event which, alone or with notice, the
passage of time or both, would constitute an Event of
2
<PAGE>
Default; (iii) the commencement of any proceeding or litigation which, if
adversely determined, would adversely affect its financial condition or ability
to conduct business; or (iv) the formation of any subsidiary of Borrower after
the date of this Agreement which notice shall be accompanied by the resolutions
of the Board of Directors of such subsidiary authorizing such subsidiary to
execute this Agreement as an additional Guarantor, together with an instrument
in form and substance satisfactory to the Bank assuming all of the obligations
of an Obligor hereunder and such executed Guaranty; and
f. Compliance with Law. Each Obligor shall comply with all
federal, state, and local laws and regulations applicable to it, including,
without limitation, ERISA, those regarding the collection, payment and deposit
of sales taxes, and income, unemployment and Social Security taxes and those
relating to environmental matters. In addition, each Obligor shall withhold
proper and accurate amounts from its employees for all employees for all periods
in full and complete compliance with applicable federal and state tax, social
security and unemployment withholding laws.
(4) Negative Covenants. Each Obligor (other than an Obligor that is an
individual) covenants and agrees that, from the date hereof until the full
satisfaction of its obligations under this Agreement and the Note, it will not
without the Bank's prior written consent:
a. Indebtedness. Create, incur or assume any indebtedness for
borrowed money other than: (i) that provided under this Agreement or otherwise
consented to by the Bank; (ii) that owing on the date hereof and listed on the
financial statements furnished to the Bank; and (iii) that which is subordinated
to indebtedness due the Bank on terms satisfactory to the Bank ("Approved
Subordinated Debt");
b. Liens. Create, incur or permit to exist against any of its
properties or assets, real or personal, tangible or intangible, now owned or
hereafter acquired, any mortgage or other lien or encumbrance, except: (i)
deposits or pledges relating to the payment of workman's compensation,
unemployment insurance, old age pension or other social security taxes; (ii)
deposits or pledges relating to the performance of bids, tenders, contracts or
leases; (iii) deposits or pledges relating to statutory obligations and surety
or appeal bonds necessary to the continuance of its business in the ordinary
course; (iv) liens for taxes not delinquent or being contested in good faith and
by appropriate proceedings; and (iv) purchase money mortgages or other purchase
money liens upon property hereafter acquired;
c. Contingent Obligations. Assume, guarantee, endorse or
otherwise become directly or contingently liable for the obligations of any
other person except for the Guaranty in connection with this Agreement and the
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business;
d. Leases. Create, incur or assume any obligations for the
rental, hire or lease of real or personal property if the aggregate of such
obligations, payable in any fiscal year, would exceed $200,000 per annum;
e. Capital Expenditures. Expend for fixed assets during any
one fiscal year an amount in excess of $100,000;
f. Officer Salaries. Expend for salaries or other
compensation for all officers an amount in excess of $450,000 in the aggregate
in any one fiscal year;
g. Asset Sale. Sell, transfer, lease, sell and thereafter
enter into an arrangement with the buyer to rent or lease back all or any
substantial part of its properties or assets, except with respect to a
Guarantor;
h. Merger. Consolidate with or merge into any other
corporation, or permit another corporation to merge into it, or acquire all or
substantially all of the properties or assets of any other Person ("Person" is
defined as natural persons, corporations, business trust associations, companies
and partnerships);
i. Note/Accounts Sale. Sell, assign, discount or
otherwise dispose of any of its notes or accounts receivable except for
collection in the ordinary course of business;
j. Loans. Make loans or advances to any other person;
k. Investments. Purchase or make any investment in the stock,
securities or evidences of indebtedness of any other Person except: (i) the
Borrower; (ii) the United States Government and its agencies; and (iii)
certificates of deposit of domestic banks having capital and surplus in excess
of $1 billion;
l. Dividends. Declare or pay any dividend or make any
other distribution, whether in cash, property, securities or any
combination thereof, with respect to any shares of capital stock of the
Obligor, or securities convertible into such capital stock, or redeem,
purchase, or retire any shares of any class of capital stock of the
Obligor, or securities convertible into such capital stock, or set apart
any sum for such purposes;
3
<PAGE>
m. Net Loss. Have a Net Loss in any fiscal year commencing
with the fiscal year ended December 31, 1996 and thereafter;
n. Current Ratio. Permit the ratio of Consolidated Current
Assets to Consolidated Current Liabilities at any time to be less than 1.1 to 1;
o. Net Worth. Permit Consolidated Tangible Net Worth at any
time to be less than $1,350,000 ("Tangible Net Worth" is defined, at any date,
as (1) in the aggregate amount at which all assets of Borrower would be shown on
a balance sheet at such date after deducting capitalized research and
development costs, capitalized interest, debt discount and expense, goodwill,
patents, trademarks, copyrights, franchises, licenses and such other assets as
are properly classified as "intangible assets", less (2) the aggregate amount of
all indebtedness, liabilities (including tax and other proper accruals) and
reserves of Borrower excluding Approved Subordinated Debt);
p. Debt: Worth. Permit the ratio of Consolidated Total
liabilities to Consolidated Tangible Net Work at any time to exceed 1.75 to 1.
("Total Liabilities" is defined as all liabilities which would properly appear
on the liability side of a balance sheet, other than capital stock, capital
surplus, retained earnings, minority interest, deferred credits, Approved
Subordinated Debt, and contingency reserves, under generally accepted accounting
principles).
(5) Guarantees.
Each Guarantor agrees:
a. To notify the Bank of any material adverse change
in the financial condition of any Obligor as and when Guarantor shall acquire
knowledge thereof.
(6) Events of Default. Upon the occurrence of any of the
following ("Events of Default"):
a. any representation or warranty made herein, in
the Note, or in any Security Agreement, Guaranty or other document, instrument,
agreement or certificate entered into or furnished in connection with this
Agreement, shall prove false or misleading in any material respect;
b. any default, event of default or breach of any
covenant or agreement made herein, in the Note or under any Security Agreement,
Guaranty, or other document, instrument, agreement or certificate entered into
or furnished in connection with this Agreement or guaranteeing or securing any
other obligations or liabilities of the Borrower to the Bank;
c. A Reportable Event shall have occurred with
respect to any Plan as defined in ERISA of any Obligor and (i) the Bank has
notified the affected Obligor in writing that it has determined that such
Reportable Event constitutes reasonable grounds for termination of such Plan by
the Pension Benefit Guaranty Corporation or the appointment of a trustee to
administer the Plan; or (ii) such termination proceedings are commenced or such
appointment occurs; or
d. (i) any default in payment of any amount due
hereunder or under the Note or in the payment or performance of any other
obligation or agreement of any nature or description of any Obligor to or with
the Bank; (ii) any Obligor shall commence any case, proceeding or other action
under any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to any of
them, or seeking to adjudicate any of them a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to any of them or any of their debts,
or seeking appointment of a receiver, trustee, custodian or other similar
official for any of them or for all or any substantial part of the assets of any
of them, or any of them shall make a general assignment for the benefit of its
creditors, or there shall be commenced against any of them any case, proceeding
or other action of a nature referred to in this clause (ii), or there shall be
commenced against any of them any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of the assets of any of them which results
in the entry of an order for any such relief, or any of them shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in this clause (ii), or any of them
shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; (iii) entry of a judgment
against any Obligor; (iv) failure of any Obligor to pay or remit any tax when
assessed or due; (v) death or dissolution of any Obligor; (vi) making a bulk
transfer or sending notice of intent to do so by any Obligor; (vii) any Obligor
granting any security interest (other than to the Bank) not expressly permitted
herein; (viii) suspension or liquidation of the usual business of any Obligor;
(ix) any Obligor defaulting in the payment of any indebtedness to any other
Person, whether or not such default is waived or the payment of such
indebtedness is accelerated; (x) any Obligor failing to furnish the Bank with
any requested financial information or failing to permit inspection of its books
or records by the Bank or any of its agents, attorneys or accountants; (xi) any
Obligor making any misrepresentation to the Bank in obtaining credit for any of
them; (xii) impairment of financial responsibility of any Obligor in the Bank's
good faith, opinion, whether or not any specific covenant or agreement contained
herein or in any other document, instrument, agreement or certificate furnished
to the Bank by any Obligor has been breached; or (xii) the Bank shall in good
faith deem itself insecure at any time, whether or not any specific covenant or
agreement contained herein or in any other document, instrument, agreement or
certificate furnished to the Bank by any Obligor has been breached;
4
<PAGE>
then, in the case of any Event of Default other than those referred to in
subclause (d)(i) above, the Bank may declare by notice to the Borrower the Note
to be immediately due and payable, and in the case of any Event of Default
referred to in subclause (d)(ii) above, the Note shall automatically become due
and payable immediately, without notice or demand, anything contained herein, in
the Note, in any Security Agreement or elsewhere to the contrary
notwithstanding.
(7) Miscellaneous.
a. Conditions to Making Loan. The Bank shall not be
required to make the Loan or any advance on account thereof unless the Borrower
shall have delivered to the Bank:
(i) All evidence requested by the Bank of
the authority of the Borrower to enter into this Agreement and the transactions
contemplated hereby and of corporate action necessary to execute, deliver and
perform this Agreement, the Note and all collateral documents;
(ii) An opinion of counsel, in form and
substance satisfactory to the Bank, to the effect of subparagraph (i) of this
Section 7(a) and to the further effect of Sections (2)a, c, d and 3e; and
(iii) Such other documents or certificates
of public officials as the Bank may reasonably request.
b. Expenses. The Borrower will pay all out-of-pocket
losses, costs and expenses incurred by the Bank in connection with the Loan, the
enforcement of any provision of this Agreement, or the Note, or the collection
of any amount due hereunder or thereunder, including, but not limited to, the
reasonable fees and disbursements of counsel to the Bank incurred in the course
of so enforcing such rights.
c. No Waiver. No failure or delay by the Bank in
exercising any right, power or remedy hereunder upon a breach hereof shall
constitute a waiver of any such term, condition, covenant, agreement, right, or
power of the Bank from exercising any such rights, power or remedy at any later
time or times.
d. Notices. Each notice or other communication
hereunder or under the Note shall be writing; shall be sent by messenger, by
first class mail or by facsimile transmitter or tested telex; and shall be
effective when received. Each notice to any Obligor shall be sent to such
Obligor at its address set forth below its signature or such other address as it
may designate, by written notice to the Bank as herein provided, or such other
address as may appear in the records of the Bank; and each notice to the Bank
shall be sent to the Bank at its address set forth below its signature.
e. Amendments. The Bank shall not be deemed to have
waived any of the terms, agreements, conditions and covenants hereof, except by
a writing signed by an officer of the Bank and delivered to the Borrower. This
Agreement may be amended by a supplemental agreement setting forth such
amendment or amendments when properly executed by all the parties to this
Agreement. No amendment, modification or waiver of any provision of this
Agreement nor consent to departure by the Bank therefrom shall be effective,
irrespective of any course of dealing, unless the same shall be in writing and
signed by the Bank, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. This
Agreement cannot be changed or terminated orally.
f. GAAP. All accounting terms used herein shall have
the meaning assigned to them by generally accepted accounting principles, unless
otherwise defined.
g. Successors and Assigns. This Agreement shall be
binding upon the Obligors, their heirs, executors, administrators, successors
and assigns and shall inure to the benefit of the Bank, its successors and
assigns. The obligations and conditions of this Agreement shall continue until
all indebtedness and liability of the Obligors to the Bank hereunder has been
indefeasibly paid and satisfied in full.
(8) Bank's Right to Arbitrate.
a. EACH OBLIGOR AGREES THAT ANY ACTION, DISPUTE,
PROCEEDING, CLAIM OR CONTROVERSY BETWEEN OR AMONG THE PARTIES WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT THE BANK'S
ELECTION, WHICH ELECTION MAY BE MADE AT ANY TIME PRIOR TO THE COMMENCEMENT OF A
JUDICIAL PROCEEDING BY THE BANK, OR IN THE EVENT OF A JUDICIAL PROCEEDING
INSTITUTED BY ANY OBLIGOR AT ANY TIME PRIOR TO THE LAST DAY TO ANSWER AND/OR
RESPOND TO A SUMMONS AND/OR COMPLAINT MADE BY SUCH OBLIGOR, BE RESOLVED BY
ARBITRATION IN NEW YORK, NEW YORK IN ACCORDANCE WITH THE PROVISIONS OF THIS
SECTION (8) AND SHALL, AT THE ELECTION OF THE BANK, INCLUDE ALL DISPUTES ARISING
OUT OF OR IN CONNECTION WITH (I) THIS AGREEMENT, THE NOTE, OR ANY RELATED
AGREEMENTS OR INSTRUMENTS, (II) ALL PAST, PRESENT AND FUTURE AGREEMENTS
INVOLVING THE PARTIES, (III)
5
<PAGE>
ANY TRANSACTION CONTEMPLATED HEREBY AND ALL PAST, PRESENT AND FUTURE
TRANSACTIONS INVOLVING THE PARTIES, AND (IV) ANY ASPECT OF THE PAST, PRESENT OR
FUTURE RELATIONSHIP OF THE PARTIES. THE BANK MAY ELECT TO REQUIRE ARBITRATION OF
ANY DISPUTE WITH ANY OBLIGOR WITHOUT THEREBY BEING REQUIRED TO ARBITRATE ALL
DISPUTES BETWEEN THE BANK AND SUCH OBLIGOR. ANY SUCH DISPUTE SHALL BE RESOLVED
BY BINDING ARBITRATION IN ACCORDANCE WITH ARTICLE 75 OF THE NEW YORK CIVIL
PRACTICE LAW AND RULES AND THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION ("AAA"). In the event of any inconsistency between such
Rules and these arbitration provisions, these provisions shall supersede such
Rules. All statutes of limitations which would otherwise be applicable shall
apply to any arbitration proceeding under this subsection (8)(a). In any
arbitration proceeding subject to these provisions, the arbitration panel (the
"arbitrator") is specifically empowered to decide (by documents only, or with a
hearing, at the arbitrator's sole discretion) pre-hearing motions which are
substantially similar to pre-hearing motions to dismiss and motions for summary
adjudication. In any such arbitration proceeding, the arbitrator shall not have
the power or authority to award punitive damages to any party. Judgment upon the
award rendered may be entered in any court having jurisdiction. Whenever an
arbitration is required, the parties shall select an arbitrator in the manner
provided in subsection (8)(d).
b. No provision of, nor the exercise of any rights
under, subsection (8)a shall limit the right of any party (i) to foreclose
against any real or personal property collateral through judicial foreclosure,
by the exercise of a power of sale under a deed of trust, mortgage or other
security agreement or instrument, pursuant to applicable provisions of the
Uniform Commercial Code, or otherwise pursuant to applicable law, (ii) to
exercise self help remedies including but not limited to setoff and
repossession, or (iii) to request and obtain from a court having jurisdiction
before, during or after the pendency of any arbitration, provisional or
ancillary remedies and relief including but not limited to injunctive or
mandatory relief or the appointment of a receiver. The institution and
maintenance of an action or judicial proceeding for, or pursuit of, provisional
or ancillary remedies or exercise of self help remedies shall not constitute a
waiver of the right of the Bank, even if the Bank is the plaintiff, to submit
the Dispute to arbitration if the Bank would otherwise have such right.
c. The Bank may require arbitration of any Dispute(s)
concerning the lawfulness, unconscionableness, propriety, or reasonableness of
any exercise by the Bank of its right to take or dispose of any collateral or
its exercise of any other right in connection with collateral including, without
limitation, judicial foreclosure, exercising a power of sale under a deed of
trust or mortgage, obtaining or executing a writ of attachment, taking or
disposing of property with or without judicial process pursuant to Article 9 of
the Uniform Commercial Code or otherwise as permitted by applicable law,
notwithstanding any such exercise by the Bank.
d. Whenever an arbitration is required under
subsection (8)a, the arbitrator shall be selected, except as otherwise herein
provided, in accordance with the Commercial Arbitration Rules of the AAA. A
single arbitrator shall decide any claim of $100,000 or less and he or she shall
be an attorney with at least five years' experience. Where the claim of any
party exceeds $100,000, the Dispute shall be decided by a majority vote of three
arbitrators, at least two of whom shall be attorneys (at least one of whom shall
have not less than five years' experience representing commercial banks). The
arbitrator shall have the power to award recovery of all costs and fees
(including attorneys' fees, administrative fees, arbitrator's fees, and court
costs) to the prevailing party.
e. In the event of any Dispute governed by this
Section (8), each of the parties shall, subject to the award of the arbitrator,
pay an equal share of the arbitrator's fees.
(9) Governing Law; Consent to Jurisdiction, Service of Process.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York made and to be performed
wholly within that state. Each Obligor and the Bank hereby consents to the
jurisdiction of the courts of the State of New York and the courts of the United
States of America for the Southern District of New York and consents that any
action or proceeding hereunder may be brought in such courts, and waives any
objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same; and authorizes the
service of process on it by registered or certified mail sent to its address
authorized by subsection (7)d as an address for the sending of notices.
(10) Waiver of Jury Trial; Other Waivers.
IN ANY ACTION, SUIT OR PROCEEDING, IN RESPECT OF OR
ARISING OUT OF THIS AGREEMENT, THE NOTE, ANY SECURITY AGREEMENT OR GUARANTY, OR
ANY OTHER DOCUMENTS RELATING TO THE LOAN, EACH OBLIGOR AND THE BANK MUTUALLY
WAIVE TRAIL BY JURY, AND EACH OBLIGOR ALSO WAIVES (I) THE RIGHT TO INTERPOSE ANY
SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION, AND (II) ANY CLAIM FOR
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
6
<PAGE>
Electronic Hardware Corporation
-----------------------------------
Name of Borrower
By: /s/ Harry Goodman
-------------------------------
[SEAL]
/s/ 320 Broad Hollow Rd
Farmingdale NY 11737
-----------------------------------
Address for Notices to Borrower
/s/ David L. Kassel
-----------------------------------
Guarantor - David Kassel
/s/ Harry Goodman
-----------------------------------
Guarantor - Harry Goodman
/s/ A Franzone
-----------------------------------
Guarantor - Andrew Franzone
/s/ A Franzone
-----------------------------------
Guarantor - Allen Field Company, Inc.
ACCEPTED:
REPUBLIC NATIONAL BANK OF NEW YORK
By:
-------------------------------
Address for Notices:
452 Fifth Avenue
New York, New York 10018
Attention: Loan Department
<PAGE>
---------------------------------------------------------
To the Lending Officer: Use this Note in Conjunction with
Term Loan Agreement.
---------------------------------------------------------
TERM LOAN AGREEMENT PROMISSORY NOTE
$500.000 New York, New York
Date: 7/29/96
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to the
order of REPUBLIC NATIONAL BANK OF NEW YORK ("Bank") at its principal banking
office at 452 Fifth Avenue, New York, New York 10018 or at any of its other
banking offices in New York as Bank may designate by written notice to Maker,
the sum of FIVE HUNDRED THOUSAND DOLLARS, as set forth below, together with
interest from the date hereof on the unpaid principal of this Note until paid in
full at the rate set forth below.
This Note is executed and delivered to Bank pursuant to a Term Loan
Agreement dated 7/29/96 entered into among Maker, Bank and any guarantors
referred to therein ("Agreement") and is entitled to, among other things, the
benefits, guarantees and security referred to therein. Upon the occurrence of an
Event of Default, as defined in the Agreement, the principal hereof and accrued
interest hereon may be declared to be or may automatically become forthwith due
and payable, in the manner, upon the conditions and with the effect provided in
the Agreement. This Note may be prepaid to the extent and in the manner set
forth in the Agreement.
The principal amount of this Note shall be payable in eleven
consecutive quarterly installments (subject to acceleration as hereinafter
provided), payable on the last day of each quarter commencing October 31, 1996.
The first eleven principal installments shall each be in the amount of $25,000.
The last principal installment shall be in the amount of the then unpaid
principal balance of this Note and shall be due and payable on July 31, 1999
(the "Stated Maturity Date") together with all unpaid interest accrued through
that date.
Interest on the unpaid principal of this Note will be due and payable
on each date when all or any portion of the principal of this Note is due and
payable and in addition if the principal amount of this Note is payable in full
on a specified date, interest on the unpaid principal of this Note will be due
and payable on the last day of each month.
Prior to the date that the entire outstanding principal amount hereof
is due and payable (whether at the Stated Maturity Date or by acceleration),
this Note shall bear interest at a rate (the "Contract Rate") equal to a
fluctuating rate of 1% per annum above the Reference Rate (as defined below),
such rate to change without notice from time to time with each change in the
Reference Rate.
After the entire outstanding principal amount of this Note becomes due;
interest under this Note shall be payable on demand and shall accrue at a
fluctuating rate per annum equal to 2% per annum above the greater from time to
time of (x) the Contract Rate in effect on the date that the principal became
due and (y) the Contract Rate that would have been in effect from time to time
if the principal had not become due. If Maker is a corporation, interest shall
be calculated on the basis of a 360-day year for actual days elapsed. In no
event shall the interest rate applicable at any time to this Note exceed the
maximum rate permitted by law. As used herein, "Reference Rate" means the rate
established by Bank from time to time at its principal domestic office as its
reference lending rate for domestic commercial loans. Bank may make loans to
customers above, at, or below the Reference Rate.
This Note shall be payable in lawful money of the United States of
America in immediately available funds. All payments on this Note shall be
applied to the payment of accrued interest before being applied to the payment t
of principal. Any payment which is required to be made on a day which is not a
banking business day in the City of New York shall be payable on the next
succeeding banking business day and such additional time shall be included in
the computation of interest. In the event that any other Obligations (as defined
below) are due at any time that Bank receives a payment from Maker on account of
this Note or any such other Obligations of Maker, Bank may apply such payment to
amounts due under this Note or any such other Obligations in such manner as
Bank, in its discretion, elects, regardless of any instructions from Maker to
the contrary.
Bank shall have a continuing lien and/or right of set-off on, and is
hereby granted a security interest in, all deposits (general and special) and
credits with Bank or any Bank Affiliate of any Maker and indorser, and may apply
all or part of the same to any
[end of page]
<PAGE>
Obligations (whether contingent or unmatured) of Maker, at any time or times,
without notice. Bank shall have a continuing lien on, and is hereby granted a
security interest in, all property of every Maker and indorser and the proceeds
thereof held or received by or for Bank or any Bank Affiliate for any purpose,
whether or not for the express purpose of serving as collateral security for the
Obligations of Maker. As used in this Note, the term "Bank Affiliate" includes
any individual, partnership or corporation acting as nominee or agent for Bank,
and any corporation or bank which is directly or indirectly owned or controlled
by, or under common control with, Bank. Any notice or disposition of property
shall be deemed reasonable if mailed at least five days before such disposition
to the last address of Maker or indorser on Bank's records. If the Obligations
evidenced by this Note are secured by a security agreement and/or other security
documents which Maker has separately delivered to Bank (whether or not such
documents make specific reference to this Note), reference to such documents is
made for a description of the collateral provided thereby and of the rights of
Maker and Bank therein. The rights and remedies of Bank provided for hereunder
(including but not limited to the right to accelerate Obligations of Maker and
to realize on any security for any such Obligations) are cumulative with the
rights and remedies of Bank available under any other instrument or agreement or
under applicable law. As used in this Note, the term "Obligations" of a person
means all amounts payable under this Note and any and all other indebtedness.
obligations and liabilities of that person to Bank, and all claims of Bank
against such person, now existing or hereafter arising, direct or indirect
(including participations or any interest of Bank in indebtedness of such person
to others), acquired outright, conditionally, or as collateral security from
another, absolute or contingent, joint or several, secured or unsecured, matured
or unmatured, monetary or non-monetary, arising out of contract or tort,
liquidated or unliquidated, arising by operation of law or otherwise, and all
extensions, renewals, refundings, replacements and modifications of any of the
foregoing. "Person" means any individual, partnership, limited partnership,
corporation, association, trust or other entity.
In the case of the occurrence of an Event of Default, each Maker and
indorser shall be jointly and severally liable for all costs of enforcement and
collection of this Note incurred by Bank or any other holder of this Note,
including but not limited to reasonable attorneys' fees, disbursements and court
costs. In addition, in the event of a default hereunder Maker shall pay all
reasonable attorneys' fees and disbursements incurred by Bank in obtaining
advice as to its rights and remedies in connection with such default.
Maker and each indorser hereby separately waive presentment, demand for
payment, notice of dishonor, protest and notice of protest and any or all other
notices or demands in connection with the delivery, acceptance, performance,
default, endorsement or guarantee of this Note. The liability of any Maker or
indorser hereunder shall be unconditional and shall not be in any manner
affected by any indulgence whatsoever granted or consented to by the holder
hereof, including but not limited to any extension of time, renewal, waiver or
other modification. Any failure of the holder to exercise any right hereunder
shall not be construed as a waiver of the right to exercise the same or any
other right at any time and from time to time thereafter. Bank or any holder may
accept late payments, or partial payments, even though marked "payment in full"
or containing words of similar import or other conditions, without waiving any
of its rights. No amendment, modification or waiver of any provision of this
Note nor consent to any departure by Maker therefrom shall be effective,
irrespective of any course of dealing, unless the same shall be in writing and
signed by Bank, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. This Note cannot
be changed or terminated orally or by estoppel or waiver or by any alleged oral
modification regardless of any claimed partial performance referable thereto.
This Note shall be governed by and construed in accordance with the
laws of the State of New York applicable to instruments made and to be performed
wholly within that state. If any provision of this Note is held to be illegal or
unenforceable for any reason whatsoever, such illegality or unenforceability
shall not affect the validity of any other provision hereof.
MAKER AGREES THAT ANY ACTION, DISPUTE, PROCEEDING, CLAIM OR CONTROVERSY
BETWEEN MAKER AND BANK, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE
("DISPUTE" OR "DISPUTES") SHALL, AT BANK'S ELECTION, WHICH ELECTION MAY BE MADE
AT ANY TIME PRIOR TO THE COMMENCEMENT OF A JUDICIAL PROCEEDING BY BANK, OR IN
THE EVENT OF A JUDICIAL PROCEEDING INSTITUTED BY MAKER AT ANY TIME PRIOR TO THE
LAST DAY TO ANSWER AND/OR RESPOND TO A SUMMONS AND/OR COMPLAINT MADE BY MAKER,
BE RESOLVED BY ARBITRATION IN ACCORDANCE WITH THE PROVISIONS OF THIS PARAGRAPH
AND SHALL, AT THE ELECTION OF BANK, INCLUDE ALL DISPUTES ARISING OUT OF OR IN
CONNECTION WITH (1) THIS NOTE OR ANY RELATED AGREEMENTS OR INSTRUMENTS, (2) ALL
PAST, PRESENT AND FUTURE AGREEMENTS INVOLVING MAKER AND BANK, (3) ANY
TRANSACTION RELATED TO THIS NOTE AND ALL PAST, PRESENT AND FUTURE TRANSACTIONS
INVOLVING MAKER AND BANK, AND (4) ANY ASPECT OF THE PAST, PRESENT OR FUTURE
RELATIONSHIP OF MAKER AND BANK. Bank may elect to require arbitration of any
Dispute with Maker without thereby being required to arbitrate all Disputes
between Bank and Maker. Any such Dispute shall be resolved by binding
arbitration in accordance with Article 75 of the New York Civil Practice Law and
Rules and the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). In the event of any inconsistency between such Rules and
these arbitration provisions, these provisions shall supersede such Rules. All
statutes of limitations which would otherwise be applicable shall apply to any
arbitration proceeding under this paragraph. In any arbitration proceeding
subject to this paragraph, the arbitration panel (the "arbitrator") is
specifically empowered to decide (by documents only, or with a hearing, at the
arbitrator's sole discretion) pre-hearing motions which are substantially
similar to pre-hearing motions to dismiss and motions for summary adjudication.
In any such arbitration proceedings, the arbitrator shall not have the power or
authority to award punitive damages to any party. Judgment upon the award
rendered may be entered in any court having jurisdiction. Whenever an
arbitration is required, the parties shall select an arbitrator in the manner
2
<PAGE>
provided in this paragraph. No provision of, nor the exercise of any rights
under, this paragraph shall limit the right of Bank (1) to foreclose against any
real or personal property collateral through judicial foreclosure, by the
exercise of the power of sale under a deed of trust, mortgage or other security
agreement or instrument, pursuant to applicable provisions of the Uniform
Commercial Code, or otherwise pursuant to applicable law, (2) to exercise
self-help remedies including but not limited to setoff and repossession, or (3)
to request and obtain from a court having jurisdiction before, during or after
the pendency of any arbitration, provisional or ancillary remedies and relief
including but not limited to injunctive or mandatory relief or the appointment
of a receiver. The institution and maintenance of an action or judicial
proceeding for, or pursuit of, provisional or ancillary remedies or exercise of
self-help remedies shall not constitute a waiver of the right of Bank, even if
Bank is the plaintiff, to submit the Dispute to arbitration if Bank would
otherwise have such right. Whenever an arbitration is required under this
paragraph, the arbitrator shall be selected, except as otherwise herein provided
in accordance with the Commercial Arbitration Rules of the AAA. A single
arbitrator shall decide any claim of $100,000 or less and he or she shall be an
attorney with at least five years' experience. Where the claim of any party
exceeds $100.000, the Dispute shall be decided by a majority of three
arbitrators, at least two of whom shall be attorneys (at least one of whom shall
have not less than five years' experience representing commercial banks). The
arbitrator shall have the power to award recovery of all costs and fees
(including attorneys' fees, administrative fees, arbitrator's fees, and court
costs) to the prevailing party. In the event of any Dispute governed by this
paragraph, each of the parties shall, subject to the award of the arbitrator,
pay an equal share of the arbitrator's fees.
MAKER AND EACH ENDORSER AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN
RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE
STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW
YORK; AND ANY ARBITRATION PROCEEDING PURSUANT HERETO SHALL BE CONDUCTED IN NEW
YORK, NEW YORK. MAKER AND EACH INDORSER CONSENT TO AND SUBMIT TO THE EXERCISE
JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER, WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
MAKER OR SUCH ENDORSER AT ITS ADDRESS SET FORTH BELOW OR TO ANY OTHER ADDRESS AS
MAY APPEAR IN BANK'S RECORDS AS THE ADDRESS OF MAKER OR SUCH INDORSER.
IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
NOTE, BANK, MAKER AND EACH INDORSER WAIVE TRIAL BY JURY, AND MAKER AND EACH
INDORSER ALSO WAIVE (1) THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF
ANY NATURE OR DESCRIPTION, (II) ANY OBJECTION BASED ON FORUM NON COVENIENS OR
VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
If this Note is executed by more than one person, then each such person
shall be jointly and severally liable on this Note, and the term "Maker" shall
mean each, any or all of such persons.
Bank is authorized to fill in any blank spaces and to otherwise
complete this Note and correct any patent errors herein.
Electronic Hardware Corporation
----------------------------------------
Name of Maker
By: /s/ Harry Goodman
------------------------------------
Signature of Authorized Signatory
/s/ HARRY GOODMAN VICE PRESIDENT
----------------------------------------
Print Name and Title
/s/ FARMINGDALE NY 11735
---------------------------------------
Address for Notices
The Maker signing above is a corporation
organized under the laws of New York.
3
<PAGE>
DEMAND GRID NOTE
New York, New York
$ 1,000,000.00 Date: 7-29-96
------------ ------------
ON DEMAND, the undersigned ("Maker") promises to pay to the order of
REPUBLIC NATIONAL BANK OF NEW YORK ("Bank") at the principal office of Bank
located at 452 Fifth Avenue, New York, New York 10018 or at any of its other
banking offices in New York as Bank may designate by written notice to Maker,
the principal sum of $1,000.000.00 DOLLARS, or so much thereof as shall be
advanced by Bank to Maker, in Bank's sole discretion, and not repaid, together
with interest on the unpaid principal amount hereof from time to time
outstanding from the date hereof until the date on which this Note is paid in
full, at the rate set forth below.
Interest on the unpaid principal of this Note will be due and payable
when demand is made for payment of the principal of this Note and
(indicate whichever is applicable):
/X/ on the last day of each month.
/ / on the _____ day of each _________.
Prior to the date that demand is made for payment of the principal
hereof, this Note shall bear interest at a rate (the "Contract Rate") equal to
(indicate whichever is applicable):
/ / a fixed rate of ____% per annum.
/X/ a fluctuating rate of 1/2% per annum above the
Reference Rate (as defined below), such rate to
change without notice from time to time with each
change in the Reference Rate.
After demand is made for payment of the principal of this Note, interest under
this Note shall be payable on demand and shall accrue at a fluctuating rate per
annum equal to 2% per annum above (i) if the Contract Rate is a fixed rate, the
Contract Rate, or (ii) if the Contract Rate is a fluctuating rate, the greater
from time to time of (x) the Contract Rate in effect on the date that the
principal became due and (Y) the Contract Rate that would have been in effect
from time to time if the principal had not become due. If Maker is a
corporation, interest shall be calculated on the basis of a 360-day year for
actual days elapsed. In no event shall the interest rate applicable at any time
to this Note exceed the maximum rate permitted by law. As used herein,
"Reference Rate" means the rate established by Bank from time to time at its
principal domestic office as its reference lending rate for domestic commercial
loans. Bank may make loans to customers above, at or below the Reference Rate.
This Note evidences loans made by Bank to Maker in Bank's sole
discretion, from time to time. The unpaid principal balance of this Note at any
time shall be the total amount advanced by Bank to Maker in Bank's sole
discretion, less the total amount of principal payments made hereon by Maker.
The date and amount of each such loan and each payment on account of principal
thereof may be endorsed by Bank on the grid attached to and made a part of this
Note, and when so endorsed shall represent evidence thereof binding upon Maker
in the absence of manifest error. Any failure by Bank to so endorse shall in no
way mitigate or discharge the obligation of Maker to repay any loans actually
made. Maker may prepay this Note in whole at any time with all accrued interest
to the date of prepayment. So long as Maker is not in default under this Note,
Maker may prepay this Note in part at any time with accrued interest to the
date of prepayment on the principal amount prepaid.
Requests for loans to Maker from Bank and directions as to the
deposition of the proceeds thereof may be given orally (including by telephone)
or in writing to Bank by the officers of Maker or other persons authorized to
borrow on Maker's behalf by borrowing resolutions of Maker's Board of Directors
heretofore delivered to Bank, as such resolutions may be amended or superseded
from time to time, provided that any such amending or superceding resolutions
shall have been certified by the Secretary or an Assistant Secretary of Maker,
and a copy thereof, so certified, shall have been delivered to an officer of
Bank at its office for payment. Bank may conclusively rely on the authorities
contained in said resolutions. Any such loan so made shall be conclusively
presumed to have been made to or for the benefit of Maker and Maker shall be
liable in respect thereof when made in accordance with any such request or
direction, or when deposited to any account of Maker with Bank, even though
persons other than those authorized to borrow on behalf of Maker may have
authority to draw against such account. Bank may rely on any such request or
direction which it believes to be genuine, and Bank shall be fully protected in
so doing without any duty to make further inquiry as to such genuineness or in
otherwise acting in good faith in the premises. By making a request for a loan,
Maker shall be deemed to be representing to Bank that all of the representations
and warranties of Maker set forth in this Note are true and correct as of the
date of such request as if made on and as of such date and shall also be deemed
to be representing and warranting to Bank that on such date Maker is not in
breach of any of its covenants to Bank set forth in this Note or in any other
document or instruments of Maker to Bank and no event of default has occurred
and is continuing with respect to any Obligations (as defined below).
This Note shall be payable in lawful money of the United States of
America in immediately available funds. Except as otherwise provided herein with
respect to prepayments, all payments on this Note shall be applied to the
payment of accrued interest before being applied to the payment of principal.
Any payment which is required to be made on a day which is not a banking
business day in the City of New York shall be payable on the next succeeding
banking business day and such additional time shall be included in the
computation of interest. In the event that any other Obligations are due at any
time that Bank receives a payment from Maker on account of this Note or any such
other Obligations, Bank may apply such payment to
- 1 -
<PAGE>
amounts due under this Note or any such other Obligations in such manner as
Bank, in its discretion, elects, regardless of any instructions from Maker to
the contrary.
Maker acknowledges that this Note is an obligation which is payable on
demand and that notwithstanding anything to the contrary in any other
instrument, agreement or other document to which Maker and/or Bank is a party,
the enumeration in any such document of specific events of default, conditions
and/or covenants relating to the loan evidenced by this Note or to any other
Obligation, shall not be construed to qualify, define or otherwise limit in any
way Bank's right, power or ability, at any time, to make demand for payment of
the principal of and interest on this Note, and Maker agrees that the occurrence
of any event of default or breach of any condition or covenant in any such
document is not the only basis for demand to be made on this Note.
To induce Bank in its sole discretion, to make loans to Maker, Maker
represents, warrants and covenants to Bank that (i) Maker is duly incorporated
and validly existing in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority to make, deliver and perform this
Note; (ii) the execution, delivery and performance by Maker of this Note have
been duly authorized by all necessary corporate action and do not and will not
violate or conflict with its charter or by-laws or any law, rule, regulation or
order binding on Maker or any agreement or instrument to which Maker is a party
or which may be binding on Maker; (iii) this Note has been fully executed by an
authorized officer of Maker and constitutes a legal, valid, binding and
enforceable obligation of Maker; (iv) no authorization, consent, approval,
license, exemption of or filing or registration with, any court or government or
governmental agency is or will be necessary to the valid execution, delivery or
performance by Maker of this Note; (v) the loans evidenced by this Note will be
used solely for working capital purposes; (vi) there are no pending or
threatened actions, suits or proceedings against or affecting Maker by or before
any court, commission, bureau or other governmental agency or instrumentality,
which individually or in the aggregate, if determined adversely to Maker, would
have a material adverse effect on the business, properties, operations, or
condition, financial or otherwise, of Maker; and (vii) the most recent financial
statements of Maker heretofore delivered to Bank are complete and correct and
since the date thereof there has not occurred any material adverse change in the
financial condition or operations of Maker from that shown on said financial
statements.
Bank shall have a continuing lien and/or right of setoff on, and is
hereby granted a security interest in, all deposits (general and special) and
credits with Bank or any Bank Affiliate of any Maker and indorser, and may apply
all or part of the same to any Obligations, at any time or times, without
notice. Bank shall have a continuing lien on, and is hereby granted a security
interest in, all property of every Maker and indorser and the proceeds thereof
held or received by or for Bank or any Bank Affiliate for any purpose, whether
or not for the express purpose of serving as collateral security for the
Obligations. As used in this Note, the term "Bank Affiliate" includes any
individual partnership or corporation acting as nominee or agent for Bank, and
any corporation or bank which is directly or indirectly owned or controlled by
or under common control with, Bank. Any notice of disposition of property shall
be deemed reasonable if mailed at least five days before such disposition to the
last address of Maker or indorser on Bank's records. If the Obligations
evidenced by this Note are secured by a security agreement and/or other security
documents which Maker has separately delivered to Bank (whether or not such
documents make specific reference to this Note), reference to such documents is
made for a description of the collateral provided thereby and of the rights of
Maker and Bank therein. The rights and remedies of Bank provided hereunder are
cumulative with the rights and remedies available to Bank under any other
instruments or agreements or under applicable law. As used in this Note, the
term "Obligations" means all amounts payable under this Note and any and all
other indebtedness, obligations and liabilities of Maker to Bank and all claims
of Bank against Maker now existing or hereafter arising, direct or indirect
(including participations or any interest of Bank in indebtedness of Maker to
others) acquired outright, conditionally, or as collateral security from
another, absolute or contingent, joint or several, secured or unsecured, matured
or unmatured, monetary or non-monetary arising out of contract or tort,
liquidated or unliquidated, arising by operation of law or otherwise, and all
extensions, renewals, refundings, replacements and modifications of any of the
foregoing.
In case any principal of or interest on this Note is not paid when due,
each Maker and indorser shall be jointly and severally liable for all costs of
enforcement and collection of this Note incurred by Bank or any other holder of
this Note, including but not limited to reasonable attorneys' fees,
disbursements and court costs. In addition, in the event of a default hereunder,
Maker shall pay all reasonable attorneys' fees and disbursements incurred by
Bank in obtaining advice as to its rights and remedies in connection with such
default.
Maker and each indorser hereby separately waive presentment, notice of
dishonor, protest and notice of protest, and any or all other notices or demands
(0ther than demand for payment) in connection with the delivery, acceptance,
performance, default, endorsement or guarantee of this Note. The liability of
any Maker or indorser hereunder shall be unconditional and shall not be in any
manner affected by any indulgence whatsoever granted or consented to by the
holder hereof, including, but not limited to any extension of time, renewal,
waiver or other modification. Any failure of the holder to exercise any right
hereunder shall not be construed as a waiver of the right to exercise the same
or any other right at any time and from time to time thereafter. Bank or any
holder may accept late payments, or partial payments, even though marked
"payment in full" or containing words of similar import or other conditions,
without waiving any of its rights. No amendment, modification or waiver of any
provision of this Note nor consent to any departure by Maker therefrom shall be
effective, irrespective of any course of dealing unless the same shall be in
writing and signed by Bank, and then such waiver on consent shall be effective
only in the specific instance and for the specific purpose for which given. This
Note cannot be changed or terminated orally or by estoppel or waiver or by any
alleged oral modification regardless of any claimed partial performance
referable thereto.
Any notice from Bank to Maker or any indorser shall be deemed given when
delivered to Maker or such indorser by hand or when deposited in the United
States mail and addressed to Maker or such indorser at the last address of Maker
or such indorser appearing on Bank's records.
This Note shall be governed by and construed in accordance with the laws
of the State of New York applicable to instruments made and to be performed
wholly within that state. If any provision of this Note is held to be illegal or
unenforceable for any reason whatsoever, such illegality or unenforceability
shall not affect the validity of any other provision hereof.
MAKER AND EACH INDORSER AGREE THAT ANY ACTION, DISPUTE, PROCEEDING,
CLAIM OR CONTROVERSY BETWEEN MAKER OR SUCH INDORSER AND BANK, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT BANK'S
ELECTION, WHICH ELECTION MAY BE
- 2 -
<PAGE>
MADE AT ANY TIME PRIOR TO THE COMMENCEMENT OF A JUDICIAL PROCEEDING BY BANK, OR
IN THE EVENT OF A JUDICIAL PROCEEDING INSTITUTED BY MAKER OR SUCH INDORSER AT
ANY TIME PRIOR TO THE LAST DAY TO ANSWER AND/OR RESPOND TO A SUMMONS AND/OR
COMPLAINT MADE BY MAKER OR SUCH INDORSER, BE RESOLVED BY ARBITRATION IN
ACCORDANCE WITH THE PROVISIONS OF THIS PARAGRAPH AND SHALL, AT THE ELECTION OF
BANK, INCLUDE ALL DISPUTES ARISING OUT OF OR IN CONNECTION WITH (1) THIS NOTE OR
ANY RELATED AGREEMENTS OR INSTRUMENTS, (2) ALL PAST, PRESENT AND FUTURE
AGREEMENTS INVOLVING MAKER OR SUCH INDORSER AND BANK, (3) ANY TRANSACTION
RELATED TO THIS NOTE AND ALL PAST, PRESENT AND FUTURE TRANSACTIONS INVOLVING
MAKER OR SUCH INDORSER AND BANK, AND (4) ANY ASPECT OF THE PAST, PRESENT OR
FUTURE RELATIONSHIP OF MAKER OR SUCH INDORSER AND BANK.
Bank may elect tor require arbitration of any Dispute with Maker or any indorser
without thereby being required to arbitrate all Disputes between Bank and Maker
or such indorser. Any such Dispute shall be resolved by binding arbitration in
accordance with Article 75 of the New York Civil Practice Law and Rules and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"). In
the event of any inconsistency between such Rules and the arbitration
provisions, these provisions shall supersede such Rules. All statues of
limitations which would otherwise be applicable shall apply to any arbitration
proceeding under this paragraph. In any arbitration proceeding subject to this
paragraph, the arbitration panel (the "arbitrator") is specifically empowered to
decide (by documents only, or with a hearing, at the arbitrator's sole
discretion) pre-hearing motions which are substantially similar to pre-hearing
motions to dismiss and motions for summary adjudication. In any such arbitration
proceeding, the arbitrator shall not have the power or authority to award
punitive damages to any party. Judgment upon the award rendered may be entered
in any court having jurisdiction. Whenever an arbitration is required, the
parties shall select an arbitrator in the manner provided in this paragraph. No
provision of, nor the exercise of any rights under, this paragraph shall limit
the right of Bank (1) to foreclose against any real or personal property
collateral through judicial foreclosure, by the exercise of the power of sale
under a deed of trust, mortgage or other security agreement or instrument,
pursuant to applicable provisions of the Uniform Commercial Code, or otherwise
herein pursuant to applicable law, (2) to exercise self-help remedies including
but not limited to setoff and repossession, or (3) to request and obtain from a
court having jurisdiction before, during or after the pendency of any
arbitration, provisional or ancillary remedies and relief including but not
limited to injunctive or mandatory relief or the appointment of a receiver. The
institution and maintenance of an action or judicial proceeding for, or pursuit
of, provisional or ancillary remedies or exercise of self-help remedies shall
not constitute a waiver of the right of Bank, even if Bank is the plaintiff, to
submit the Dispute to arbitration if Bank would otherwise have such right.
Whenever an arbitration is required under this paragraph, the arbitrator shall
be selected, except as otherwise herein provided, in accordance with the
Commercial Arbitration Rules of the AAA. A single arbitrator shall decide any
claim of $100,000 or less and he or she shall be an attorney with at least five
years' experience. Where the claim of any party exceeds $100,000, the Dispute
shall be decided by a majority of three arbitrators, at least two of whom shall
be attorneys (at least one of whom shall have not less than five years'
experience representing commercial banks). The arbitrator shall have the power
to award recovery of all costs and fees (including attorneys' fees,
administrative fees, arbitrator's fees, and court costs) to the prevailing
party. In the event of any Dispute governed by this paragraph, each of the
parties shall, subject to the award of the arbitrator, pay an equal share of the
arbitrator's fees.
MAKER AND EACH INDORSER AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN
RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE
STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW
YORK AND ANY ARBITRATION PROCEEDING PURSUANT HERETO SHALL BE CONDUCTED IN NEW
YORK, NEW YORK. MAKER AND EACH INDORSER CONSENT TO AND SUBMIT TO THE EXERCISE OF
JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER, WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
MAKER OR SUCH INDORSER AT ITS ADDRESS SET FORTH BELOW OR TO ANY OTHER ADDRESS AS
MAY APPEAR IN BANK'S RECORDS AS THE ADDRESS OF MAKER OR SUCH INDORSER.
IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
NOTE, BANK, MAKER AND EACH INDORSER WAIVE TRIAL BY JURY, AND MAKER AND EACH
INDORSER ALSO WAIVE (I) THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF
ANY NATURE OR DESCRIPTION, (II) ANY OBJECTION BASED ON FORUM NON CONVENIENS OR
VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL PUNITIVE OR SPECIAL DAMAGES.
Bank is authorized to fill in any blank spaces and to otherwise
complete this Note and correct any patent errors herein.
ELECTRONIC HARDWARE CORPORATION
-----------------------------------
Name of Maker
By: /s/Harry Goodman
-------------------------------------
Signature of Authorized Signatory
/s/HARRY GOODMAN -VICE PRESIDENT
----------------------------------------------
Print Name and Title
/s/320 BROAD HOLLOW RD FARMINGDALE NY 11735
----------------------------------------------
Address for Notices
- 3 -
<PAGE>
The Maker signing above is a:
/ / partnership organized under the
laws of ___________________________.
/ / limited partnership organized under the
laws of ___________________________.
/X/ corporation organized under the laws of
_______________________________________.
/ / other (specify): ____________________.
LOANS AND PAYMENTS OF PRINCIPAL
Amount of Unpaid
Loan Amount of Principal Principal Notation
Date No. Loan Paid Balance Made By
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<PAGE>
LOAN AGREEMENT
Agreement made February 21, 1997 by Electronic Hardware Corp., a New York
corporation with offices at 320 Broad Hollow Road, Farmingdale, NY 11735
(hereinafter called Borrower) and Allen Field Co. Inc., Andrew Franzone, Harry
Goodman and David Kassel, New York corporations, with offices at 320 Broad
Hollow Road, Farmingdale, NY 11735 (hereinafter called guarantors).
This agreement is made in connection with a loan of $250,000.00 to Borrower from
Long Island Development Corporation, a New York corporation with offices at 255
Executive Drive, Suite 400, Plainview, NY 11803 (hereinafter called LIDC or
lender). The loan is being made so that Borrower can make certain renovations,
purchase certain equipment and installations and/or for working capital.
Borrower has signed a note obligating itself to repay the loan. Guarantors have
signed a guarantee obligating themselves to repay the loan. Borrower and
guarantors represent and agree as follows:
1. Use of Proceeds: They will use the proceeds of the loan as permitted
by the Commitment Letter and Loan Memorandum of the Lender - New York
State Department of Economic Development Long Island Revolving Loan
Fund for Defense Diversification dated September 27, 1996 (hereinafter
the "Memorandum").
2. Financial Information: During each year of the loan term, Borrower will
submit to LIDC (a) an annual financial statement prepared by an
independent accountant in such form as LIDC may approve beginning with
its financial statement for 1996 and (b) its federal tax return
beginning with such return for FYE 1996 within 90 days of the end of
each fiscal year. Borrower agrees that LIDC may obtain said financial
statements and tax returns directly from Borrower's accountant.
3. Financial Information: During each year of the loan term, each
Guarantor will submit to LIDC (a) an annual financial statement
prepared by an independent accountant in such form as LIDC may approve
beginning with its financial statement for 1996 and (b) its federal tax
return beginning with such return for FYE 1996 within 90 days of the
end of each fiscal year. Each Guarantor agrees that LIDC may obtain
said financial statements and tax returns directly from its accountant.
4. Records: Borrower and guarantors will at all times keep proper books of
account and records regarding their operations and the premises.
Borrower and guarantors hereby authorize LIDC to make or cause to be
made, at their expense and in such manner and at such times as LIDC may
require, (a) inspections and audits of any books, records and papers in
the custody or control of borrower, guarantors or others, relating to
Borrower or guarantors' financial or business conditions, including the
making of copies thereof and extracts therefrom.
-1-
<PAGE>
Borrower and Guarantors hereby authorize all Federal. State and municipal
authorities (a) to furnish reports of examinations, records, and other
information relating, to the conditions and affairs of Borrower and guarantors
and any desired information from reports, returns, files and records of such
authorities upon request therefore by LIDC; and (b) to permit representatives of
LIDC to have full access from time to time to, and make copies of and extracts
from, any and all reports or returns by, or with respect to Borrower or
guarantors, and all reports of examiners or other information concerning
Borrower or guarantors contained in the files and records of such authorities.
Borrower and Guarantors agree to give LIDC access upon request to said
documentation for inspection and copying.
5. Reimbursable Expenses: Borrower and guarantors will, on demand,
reimburse LIDC for any and all expenses incurred, or which may be
hereafter incurred, by LIDC from time to time in connection with or by
reason of Borrower or guarantors' application for, and the making and
administration of the Loan.
6. Profits: There shall be no distribution of profits to shareholders and
no additions to the profit sharing nor pension funds of owners and
officers of Borrower unless Borrower is profitable and can afford same
in addition to payments in connection with this loan and other carrying
charges on the premises. Nothing herein shall prevent an employee from
making a contribution pursuant to the 401K plan.
7. Fees and Commissions: Borrower and guarantors certify they have not
directly or indirectly paid or agreed to pay any fees or commissions or
other compensation in connection with the application or closing of the
loan except their own counsel and as follows. Borrower and guarantors
further agree they will not pay any sums other than these listed in
connection with the application and closing of the loan:
Name & Address Service Fee
Newman and Cahn LIDC Legal $1,000.00
One Old Country Road
Carle Place, NY 11514-1889
Long Island Development Corp. Commitment and $2,500.00
255 Executive Drive
Suite 400 Application fees
Plainview NY 11514
8. Liability: Borrower and guarantors are jointly and severally liable
hereunder.
9. Borrower and guarantors agree to conform to the terms and conditions of
the commitment letter and loan memorandum.
-2-
<PAGE>
10. Omitted
11. Toxic Waste: Borrower and guarantors will keep the premises free from
pollution with toxic waste and will comply with all environmental laws
and will indemnify Lender from any liability resulting from any past,
present or future toxic waste contamination or damage and or clean up
responsibilities in connection with the premises and the additional
collateral.
12. Parties Affected: This agreement shall be binding upon Borrower,
guarantors and their successors and assigns and shall inure to the
benefit of LIDC and their successors and assigns.
13. Hazard Insurance: Borrower and Guarantors hereby agree to maintain
hazard insurance upon all of its tangible assets in the minimum amount
of eighty percent of value during the life of the loan, said insurance
naming LIDC as mortgagee payee/loss payee as appropriate. Borrower and
Guarantors also agree to maintain appropriate liability, workmen's
compensation and contents insurance.
14. Omitted
15. Omitted
16. Omitted
17. Acceleration: A violation of any one term of this loan agreement or of
the promissory note of even date or of any requirement in connection
with the loan imposed by LIDC may, at the option of LIDC, constitute a
default of the entire loan and the entire remaining indebtedness shall
immediately become due and payable without notice or demand.
18. Waiver: A Waiver by LIDC of any one term of this loan agreement shall
not be effective unless in writing and shall not constitute a waiver of
any other term.
19. Commitment Letter and Loan Memorandum: Borrower and guarantors agree
that all terms and conditions imposed by the Commitment Letter and Loan
Memorandum are hereby incorporated into this loan agreement and in case
of inconsistency between the terms of this loan agreement and the
Memorandum, Borrower and guarantors agree that they will abide by the
decision of LIDC as to resolution of such inconsistency.
20. Terms: The undersigned certify that they have read and are familiar
with each term of this loan agreement and understand the requirements
herein and will abide by them.
21. Adverse Change: Borrower and guarantors certify to Lender that there
has been no adverse change in the business, property or condition
(financial or otherwise) of
-3-
<PAGE>
adverse change in the business, property or condition (financial or
otherwise) of Borrower or Guarantors since the date of application
herein and that Borrower or guarantors will advise Lender of any
adverse changes from this date forward within ten (10) days of same.
22. Management: Borrower agrees not to execute any contracts for management
consulting services without the prior written consent of LIDC.
23. Change of Control: Borrower and guarantors agree that any and all
outstanding obligations may be accelerated and payments called for by
LIDC if the Borrower or guarantors, during the term of this loan,
effect a change of control of their businesses (management or
ownership, including ownership referred to in paragraph 27 of this
agreement).
24. Amount Due: Borrower and guarantors agree that the "amount due" at any
time during loan term includes the unpaid principal and accrued
interest.
25. New Debt: Borrower and guarantors agree not to incur additional (new)
financial obligations without LIDC's prior written consent other than
normal trade debt and other debt which it can afford while still
remaining profitable.
26. Ownership Premises: Borrower and guarantors agree that premises are
owned by K&G Realty Inc. an affiliate of the Borrower and (the
"affiliate") as of this date and agree that the entire indebtedness
hereunder and under promissory note of even date shall immediately
become due and payable without notice or demand if there is a change of
said premises ownership during the loan term without prior written
consent of LIDC.
Occupancy of Premises: Borrower and guarantors agree that the entire
premises are leased from the affiliate to borrower for the term of this
loan. Borrower and guarantors agree that there shall be no assignment
of said lease nor further subletting under said lease except with the
prior written consent of LIDC. Borrower and guarantors agree that
failure by Borrower to occupy at least 100% of the premises during the
term of the loan except with prior written consent of LIDC shall
constitute a default under the loan.
27. Ownership: Borrower and guarantors agree that the entire indebtedness
due hereunder and under promissory note of even date shall become
immediately due and payable without notice or demand if there is a
change of ownership of Borrower or guarantors during loan term without
LIDC's prior written consent. With respect to a corporation, this
applies to ownership represented by Common Stock, as well as authorized
but unissued stock, as well as Treasury Stock. Borrower and any
corporate guarantor(s) are each owned as follows as of the date of this
agreement:
-4-
<PAGE>
Andrew Franzone 1/3 President
Harry Goodman 1/3 V.P. / Sec'y
David Kassel 1/3 Chairman
28. UCC's: Borrower and guarantors hereby grant to LIDC a security interest
in all fixtures attached to or used in connection with the premises now
existing and hereafter acquired or created subject to no prior liens
except Republic National Bank.
LIDC is hereby authorized to file Financing Statements under the New
York Uniform Commercial Code without Borrowers signatures. Borrower and
guarantors agree to pay the cost of filing said financing statements or
renewals thereof during the loan term.
It is agreed that Borrower owns all said fixtures and shall not
transfer, sell, assign or otherwise dispose of said fixtures nor permit
any other security interest to be created thereon without LIDC's
written approval.
29. Business Form: Borrower and guarantors shall not conduct business
under any other name than those used at date of this agreement nor
change nor reorganize the type of business entity under which they do
business except upon prior written approval of LIDC. If such approval
is given, Borrower and guarantors agree that all documents, instruments
and agreements demanded by LIDC shall be prepared and filed at Borrower
or guarantors' expense before such change of name or business entity
shall occur. Borrower or guarantors shall pay the filing and recording
costs of any document or instruments necessary to perfect, extend,
modify or terminate the security interest created hereunder, as
demanded by LIDC.
30. Liens: Borrower and guarantors shall maintain their assets and its
business premises in good condition, pay promptly all taxes, judgments
or charges of any kind levied or assessed thereon, and keep same free
from mortgages or liens except those permitted by LIDC.
31. Employees: During the loan, Borrower will provide LIDC with statistics
as requested regarding Borrower's employees.
32. Hereafter-Formed Subsidiaries and Affiliates: Borrower and guarantors
shall cause any wholly owned subsidiary or any affiliate hereafter
formed or acquired by Borrower or guarantors within 30 days of such
formation or acquisition, to unconditionally guarantee in writing the
payment of all the liabilities and obligations of Borrower and
Guarantors to LIDC. An affiliate is defined as a company with 50% or
more common ownership between it and borrower or guarantor.
-5-
<PAGE>
Borrower and guarantors shall not transfer assets to a subsidiary or
affiliate or any other entity other than among those signing this
agreement without the prior consent of LIDC.
33. Other Laws: Borrower and guarantors shall comply with all Federal and
State laws pertaining to equal opportunity employment.
34. Indemnification: Borrower and guarantors agree to indemnify LIDC for
any and all claims against LIDC or costs, expenses, liabilities or
damages incurred by LIDC in connection with the Loan and the Premises.
35. Events of Default: The following shall constitute a default of the
loan:
a. Falsity of any statements, certificates, reports, representations or
warranties made or furnished by Borrower or guarantors or their
representative in correction with the making of the Loan or the
fulfillment of this Agreement, the Note, or the Security Agreement;
b. Insolvency or inability of Borrower or guarantors to pay their debts
generally as they become due;
c. Entry of an order, judgment or decree by court of competent
jurisdiction appointing a receiver, trustee or liquidator of Borrower
or guarantors or for a substantial part of the assets of Borrower or
guarantors;
d. Institution by or against Borrower or guarantors of any bankruptcy,
reorganization, arrangement, insolvency, or liquidation proceedings,
provided that such proceedings are not contested in good faith;
e. Suspension of all or a substantial part of the operations of
Borrower conducted on its business premises;
f. Vacancy of all or a substantial part of the business premises of the
Borrower;
g. Failure to provide LIDC with copies of current receipted real estate
tax bills and assessments or evidence of payment thereof, as LIDC may
demand;
h. Failure to maintain in full force and effect valid insurance
policies, if originally required;
i. Failure to terminate or subordinate within thirty (30) days after
filing any financing statement affecting the mortgaged fixtures,
chattels or articles of personal property filed
-6-
<PAGE>
by other than LIDC and without LIDC's written consent (with the
exception of continuation statements);
j. Failure to comply with any of the terms and conditions of this
Agreement, or the Memorandum, and/or failure to perform or abide by any
of the covenants, warranties or representations made in this Agreement
or the Memorandum;
k. Failure to comply with any of the terms and conditions of the
Mortgage, Note or any guaranty thereof executed of even date herewith;
1. Failure to comply with any of the terms and conditions of any other
loan from LIDC for the benefit of Borrower and/or Guarantors.
36. Remedies:
a. If any one or more of the Events of Default described in paragraph
35 hereof shall have occurred, then, and in such event, and at any time
thereafter, if any Event of Default shall then exist, LIDC may, at its
option, declare the Note to be due and payable, whereupon the maturity
of the then unpaid balance of the Note shall forthwith become due and
payable without presentment, demand, protest, or notice of any kind,
all of which are hereby expressly waived;
b. In case any Event of Default shall occur, LIDC may enforce its
rights or remedies by suit in equity or by action at law, or both;
c. No right or remedy herein conferred upon LIDC is intended to be
exclusive of any other right or remedies herein;
37. Miscellaneous:
a. Borrower and guarantors waive the right of a jury trial in any
action or proceeding brought in any Court by either party, or assigns,
arising out of the subject matter of this Agreement, the Loan or any
Note or other obligation secured hereby;
b. This Agreement may not be changed, modified or discharged, in whole
or in part, and no right or remedy of LIDC hereunder or under the Note
may be waived unless such change, modification, discharge or waiver is
in writing and signed by LIDC.
c. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein;
-7-
<PAGE>
d. Notices and Demands: Any notices or demands required by this
Agreement, the Note or the Mortgage, shall be in writing and delivered
personally or mailed to the party entitled to such notice or demand at
the premises.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed February 21, 1997.
Electronic hardware Corp.
BORROWER
SEAL
/s/ Andrew Franzone
---------------------------------
by: Andrew Franzone, President
ATTEST: /s/ Andrew Franzone
as attorney in fact for
/s/ for Harry Goodman
- ------------------------------------------
Harry Goodman, Secretary
Witness:/s/ [illegible]
----------------------------------
LONG ISLAND DEVELOPMENT CORPORATION
/s/ Eileen Leavell
----------------------------
By: Eileen Leavell
Asst. Secretary
-8-
<PAGE>
STATE OF NEW YORK }
.ss:
COUNTY OF NASSAU }
On February 21, 1997, before me personally came Andrew Franzone, to me
known who, being by duly sworn, did depose and say that he resides at BX 651
Strathmore Ct, Remsenberg, NY 11960; that he is the President of Electronic
Hardware Corp., the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he signed his name thereto by
like order.
/s/Carol Lotardo
---------------------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 199/s/8
STATE OF NEW YORK }
.ss:
COUNTY OF NASSAU }
On February 21, 1997, before me personally came Eileen Leavell, to me
known who, being by me duly sworn, did depose and say that he resides at Floral
Park, New York; that she is an Assistant Secretary of the LONG ISLAND
DEVELOPMENT CORPORATION, the corporation described in and which executed the
foregoing instrument; that she knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that she signed her
name thereto by like order.
/s/Carol Lotardo
---------------------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 199/s/8
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<PAGE>
LOAN PROMISSORY NOTE
$250,000.00 Carle Place, New York
Dated: February 21, 1997
FOR VALUE RECEIVED, Electronic Hardware Corp., a New York
corporation with an office for the transaction of business located at 320
Broad Hollow Road, Farmingdale, NY 11735 (the "Borrower"), promises to
pay to the order of the LONG ISLAND DEVELOPMENT CORPORATION, a New York
State not-for-profit corporation, having an office for the transaction of
business located at 255 Executive Drive, Suite 400, Plainview, New York
11803 (the "Lender") the principal sum of Two hundred fifty thousand
($250,000.00) DOLLARS, with interest on the unpaid principal balance of
such amount from the date of this Note or such advance. as the case may
be, at 7% percent per annum. This Note evidences a loan (the "Loan") made
by the Lender to Borrower, in the principal amount hereof, and is secured
by (a) a security agreement on all machinery and equipment of Borrower;
and (b) such other security as may now or hereafter be given to the
Lender by Borrower as collateral for the Loan (the Security Agreement,
this Note and such other documents evidencing such other security which
may hereafter be given as further security for, or in connection with,
the Loan, being hereinafter collectively referred to as the "Loan
Documents").
PAYMENT OF PRINCIPAL AND INTEREST
Borrower shall make payments on account of the principal balance
plus pay interest at the Interest Rate on the unpaid principal balance of
this Note beginning on the 1st day of the first full month following the
Closing Date, and continuing on the first day of each month thereafter
until the Maturity Date (or such earlier date in the event the Lender or
subsequent holder of the Note [the "Holder"] accelerates Borrower's
obligations hereunder), at which time, the balance of principal remaining
unpaid plus any accrued and unpaid interest shall be fully due and
payable. Said payments of principal and interest shall consist of 120
equal monthly payments, each in the amount of $2,902.71, the first of
which shall commence on March 1, 1997 and on the 1st day of each month
thereafter, up to and including February 1, 2007.
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments under this Note are payable
at 255 Executive Drive, Suite 400, Plainview, New York 11803, or at such
other place as the Lender shall notify Borrower in writing. The Lender
reserves the right to require any payment on this Note, whether such
payment is of a regular installment or represents a prepayment, to be by
wired federal funds or other immediately available funds or to be paid at
a place other than the above address.
(b) APPLICATION OF PAYMENTS RECEIVED. Except as otherwise
provided in this Note, all payments received by the Lender on this Note
shall be applied by the Lender as follows:
FIRST, to any unpaid Late Payment Charges (hereinbelow defined); and
-1-
<PAGE>
SECOND, to accrued and unpaid interest to the payment due date; and
THIRD, to the reduction of principal of this Note.
If an Event of Default (hereinbelow defined) occurs, the Lender may apply
any payments received to any sums due hereunder or under any other Loan
Document in such manner as it deems appropriate.
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any amount of
principal and/or interest on this Note for fifteen (15) days after such
payment becomes due, whether by acceleration or otherwise, the Lender
may, at its option, whether immediately or at the time of final payment
of the amounts evidenced by this Note, impose a late payment charge (the
"Late Payment Charge") computed by multiplying the amount of each past
due payment by two (2%) percent, not to exceed $500.00. Until any and all
Late Payment Charges are paid in full, the amount thereof shall be added
to the indebtedness secured by any of the Loan Documents. The Late
Payment Charge is not a penalty and is deemed to be liquidated damages
for the purpose of compensating the Lender for the difficulty in
computing the actual amount of damages incurred by the Lender as a result
of the late payment by Borrower.
(d) PREPAYMENT. The principal balance may be prepaid in whole or
in part at any time without premium or penalty.
In the event the Lender receives partial prepayments, or in the
event that the Lender shall receive proceeds of condemnation or insurance
proceeds for application against the Loan, such prepayments and proceeds
shall be applied to installments of principal in the inverse order of
maturity and no prepayment premium shall be deducted from such
condemnation or insurance proceeds.
(e) ACCELERATION. If:
(i) Borrower fails to pay any sum due on this Note
within ten (10) days of the date the same is due; or
(ii) Borrower shall fail to perform any other
obligation required to be performed by Borrower under this Note, for ten
(10) days after the Lender has given written notice of such failure to
Borrower; or
(iii) Any warranty, representation or other statement
by or on behalf of Borrower in any instrument furnished in compliance
with or in reference to this Note be false or misleading in any material
respect; or
(iv) Borrower or any Guarantor shall generally not be
paying debts as they become due or file a petition or seek relief under
or take advantage of any insolvency law; make an assignment for the
benefit of creditors; commence a proceeding for the appointment of a
receiver, trustee, liquidator, custodian or conservator of Borrower or
any Guarantor or of the whole or substantially all of Borrower's or any
Guarantor's property or of any collateral pledged as security for this
Note; or if Borrower or any Guarantor shall file a petition or an answer
to
- 2 -
<PAGE>
a petition under any chapter of the Bankruptcy Reform Act of 1978, as
amended (or any successor statute thereto), or file a petition or seek
relief under or take advantage of any other similar law or statute of the
United States of America, any State thereof, or any foreign country or
subdivision thereof; or
(v) Under the provisions of any law for the relief or
aid of debtors, a court of competent jurisdiction or a receiver, trustee,
liquidator, custodian or conservator shall assume custody or control or
take possession from Borrower or any Guarantor of all or substantially
all of Borrower's or any Guarantor's property or any portion of any
collateral pledged as security for this Note; or
(vi) A Court of competent jurisdiction shall enter an
order, judgment or decree appointing or authorizing a receiver, trustee,
liquidator, custodian or conservator of Borrower or any Guarantor or of
the whole or substantially all of Borrower's or any Guarantor's property,
or any portion of the collateral pledged as security for this Note, or
enter an order for relief against Borrower or any Guarantor in any case
commenced under any chapter of the Bankruptcy Reform Act of 1978, as
amended (or any successor statute thereto), or grant relief under any
other similar law or statute of the United States of America, any State
thereof, or any foreign country or subdivision thereof and the same is
not stayed or discharged within sixty (60) days of entry; or
(vii) There is commenced against Borrower or any
Guarantor any proceeding for any of the foregoing relief or if a petition
is filed against Borrower or any Guarantor under any chapter of the
Bankruptcy Reform Act of 1978, as amended (or any successor statute
thereto), or under any other similar law or statute of the United States
of America, any State thereof, or any foreign country or subdivision
thereof, and such proceeding or petition remains undismissed for a period
of sixty (60) days or if Borrower or any Guarantor by any act indicates
consent to, approval of or acquiescence in any such proceeding or
petition; or
(viii) the Lender receives a notice to creditors with
regard to a bulk transfer by Borrower or any Guarantor pursuant to
Article VI of the Uniform Commercial Code; or
(ix) Any Guarantor defaults under or attempts to
withdraw, cancel or disclaim liability under any Guaranty issued to the
Lender or the Holder; or
(x) Any shares of the capital stock of the Borrower or
any Guarantor, if the Borrower or such Guarantor is a corporation, shall
be sold, transferred, conveyed, mortgaged, pledged, hypothecated or
alienated without the prior written consent of the Lender; or
(xi) Any partnership interest in the Borrower or any
Guarantor, if the Borrower or such Guarantor is a partnership, shall be
sold, assigned, transferred, conveyed, mortgaged, pledged, hypothecated
or alienated without the prior written consent of the Lender: or
(xii) Any material inaccuracy shall exist in any of the
financial statements or in any other information furnished by or to be
furnished by the Borrower or any Guarantor to the Lender to induce the
Lender to make the Loan evidenced by this Note; or
- 3 -
<PAGE>
(xiii) The death of any individual Borrower or
Guarantor or the dissolution of any corporate or partnership Borrower or
Grantor; or
(xvi) The Borrower or any other partnership or
corporate entity having common ownership with the Borrower, or any
Guarantor or any other partnership or corporate entity having common
ownership with any Corporate Guarantor, defaults under any other
agreement or document, now existing or in the future existing with the
Lender or the Holder; if a default shall be made by the Borrower or any
other partnership or corporate entity having common ownership with the
Borrower or by any Guarantor or any other partnership or corporate entity
having common ownership with any Corporate Guarantor, in the payment of
principal and interest or any charges on any note or other instrument
executed, or in the future executed and delivered to the Lender or the
Holder by the Borrower or any Guarantor or any other partnership or
corporate entity having common ownership with either the Borrower or any
Corporate Guarantor when and as the same shall become due and payable,
whether at a due date or by acceleration thereof; or
(xv) an event of default, under any other documents
executed by any Guarantor in connection with a loan or loans now existing
or in the future existing to any Corporate Guarantor and the Lender or
the Holder, shall have occurred; or
(xvi) and event of default, under any other Loan
Documents, shall have occurred;
then, and in any such event (an "Event of Default"), the Lender or the
Holder may, at its option, declare the entire unpaid balance of this Note
together with interest accrued thereon, to be immediately due and payable
and the Lender or the Holder may proceed to exercise any rights or
remedies that it may have under this Note or any other Loan Documents, or
such other rights and remedies with the Lender or the Holder may have at
law, equity or otherwise. In the event of such acceleration, Borrower may
discharge its obligations to the Lender or the Holder by paying:
(A) the unpaid principal balance hereof as at
the date of such payment,
plus
(B) accrued interest computed in the manner
set forth above, plus
(C) any Late Payment Charge computed in the
manner set forth above.
Plus
(D) any other sum due and owing the Lender or
the Holder under this Note
or any other Loan Document.
(f) INTEREST ACCRUAL. That if the whole of said principal sum
evidenced by this Note and interest, shall become due by exercise of the
option of the Lender or Holder after default by the Borrower or Mortgagor
under any of the terms, covenants and conditions of the Mortgage and
Security Agreement and/or this Note, or if the whole of said principal
sum and interest shall mature and become due under the terms, covenants
and conditions of the Mortgage and Security Agreement and/or this Note
regardless of default, if any, on the part of the
- 4 -
<PAGE>
Borrower or Mortgagor, then interest on said principal sum shall continue
to accrue at the rate provided for in this Note until said Principal sum
is fully paid.
(g) INTEREST AFTER MATURITY. In the event of Maturity by
acceleration or otherwise, the Interest Rate charged will be increased by
four (4%) percent per annum above the interest rate otherwise due. In no
event, however, will the rate charged exceed the maximum allowable by
law.
(h) COSTS AND EXPENSES ON DEFAULT. After default, in addition to
principal, interest and any Late Payment Charge, the Lender or the Holder
shall be entitled to collect all costs of collection, including, but not
limited to, reasonable attorneys' fees, incurred in connection with the
protection or realization of collateral or in connection with any of the
Lender's or Holder's collection efforts, whether or not suit on this Note
or any foreclosure proceeding is filed, and all such costs and expenses
shall be payable on demand and until paid shall also be secured by the
Loan Documents and by all other collateral held by the Lender or the
Holder as security for Borrower's obligations to the Lender or Holder.
(i) N0 WAIVER BY THE LENDER. No failure on the part of the
Lender or other holder hereof to exercise any right or remedy hereunder,
whether before or after the happening of a default, shall constitute a
waiver thereof, and no waiver of any past default shall constitute waiver
of any future default or of any other default. No failure to accelerate
the Loan evidenced hereby by reason of default hereunder, or acceptance
of a past due installment, or indulgence granted from time to time shall
be construed to be a waiver of the right to insist upon prompt payment
thereafter, or shall be deemed to be a novation of this Note or as a
reinstatement of the Loan evidenced hereby or as a waiver of such right
of acceleration or any other right, or be construed so as to preclude the
exercise of any right which the Lender may have, whether by the laws of
the state governing this Note, by agreement or otherwise; and Borrower
and each endorser or Guarantor hereby expressly waive the benefit of any
statute or rule of law or equity which would produce a result contrary to
or in conflict with the foregoing. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom such
agreement is sought to be enforced.
(j) WAIVER BY BORROWER. Borrower and each endorser or guarantor
of this Note hereby waives presentment, protest, demand, diligence,
notice of dishonor and of nonpayment, and waives and renounces all rights
to the benefits of any statute of limitations and any moratorium,
appraisement, exemption and homestead now provided or which may hereafter
be provided by any federal or state statute, including but not limited to
exemptions provided by or allowed under the Bankruptcy Code of 1978, both
as to itself personally and as to all of its or their property, whether
real or personal, against the enforcement and collection of the
obligations evidenced by this Note and any and all extensions, renewals
and modifications hereof.
(k) COMPLIANCE WITH USURY LAWS. It is the intention of the
parties to conform strictly to the usury laws, whether state or federal,
that are applicable to this Note. All agreements between Borrower and the
Lender, whether now existing or hereafter arising and whether oral or
written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise,
shall the amount paid or agreed to be paid to the Lender or the holder
hereof, or collected by the Lender or such holder,
- 5 -
<PAGE>
for the use, forbearance or detention of the money to be loaned hereunder
or otherwise, or for the payment or performance of any covenant or
obligation contained herein, or in any of the Loan Documents, exceed the
maximum amount permissible under applicable federal or state usury laws.
If under any circumstances whatsoever fulfillment of any provision hereof
or of the Loan Documents, at the time performance of such provision shall
be due, shall involve exceeding the limit of validity prescribed by law,
then the obligation to be fulfilled shall be reduced to the limit of such
validity; and if under any circumstances the Lender or other holder
hereof shall ever receive an amount deemed interest by applicable law,
which would exceed the highest lawful rate, such amount that would be
excessive interest under applicable usury laws shall be applied to the
reduction of the principal amount owing hereunder or to other
indebtedness secured by the Loan Documents and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of
principal and such other indebtedness, the excess shall be deemed to have
been a payment made by mistake and shall be refunded to Borrower or to
any other person making such payment on Borrower's behalf. All sums paid
or agreed to be paid to the holder hereof for the use, forbearance or
detention of the indebtedness of Borrower evidenced hereby, outstanding
from time to time shall, to the extent permitted by applicable law, and
to the extent necessary to preclude exceeding the limit of validity
prescribed by law, be amortized, pro-rated, allocated and spread from the
date of disbursement of the proceeds of this Note until payment in full
of the Loan evidenced hereby and thereby so that the actual rate of
interest on account of such indebtedness is uniform throughout the term
hereof and thereof. The terms and provisions of this paragraph shall
control and supersede every other provision of all agreements between
Borrower, any endorser or Guarantor and the Lender.
(1) GOVERNING LAW: SUBMISSION TO JURISDICTION. This Note shall
be governed by and construed under the laws of the State of New York.
Borrower and each endorser or Guarantor hereby submits to personal
jurisdiction in said State for the enforcement of Borrower's obligations
hereunder or under any other Loan Document and waives any and all
personal rights under the law of any other state to object to
jurisdiction within such State for the purposes of litigation to enforce
such obligations of Borrower.
(m) WAIVER BY BORROWER OF JURY TRIAL. The Borrower hereby waives
trial by jury in any litigation in any court with respect to, in
connection with, or arising out of this Note, any other Loan Document or
the Loan, or any instrument or document delivered in connection with the
Loan, or the validity, protection, interpretation, collection or
enforcement thereof, or any other claim or dispute howsoever arising
between the Borrower and the Lender or the Holder.
(n) RIGHT OF SET OFF. Borrower grants to the Lender or the
Holder a continuing lien for the amount of this Note upon any and all
monies, securities and other property of Borrower and the proceeds
thereof, now or hereafter held or received by or in transit to the Lender
or the Holder from or for Borrower whether for safekeeping, custody,
pledge, transmission, collection or otherwise, and also upon any and all
deposits (general or special) and credits of Borrower with, and any and
all claims of Borrower against the Lender or the Holder at any time
existing. Upon the occurrence of an Event of Default, the Lender or the
Holder is authorized at any time and from time to time, without notice to
Borrower to set off, appropriate and apply any and all items hereinabove
referred to against this Note.
- 6 -
<PAGE>
(o) AUTHORITY OF THE LENDER. Borrower authorizes the Lender to
date this Note as of the day when the Loan is made and to complete or
correct this Note as to any terms of the Loan not set forth herein at the
time of delivery hereof.
(p) NOTICES. Any notices required or permitted to be given
hereunder shall be: (i) personally delivered or (ii) given by registered
or certified mail, postage prepaid, return receipt requested, or (iii)
forwarded by overnight courier service, in each instance addressed to the
addresses set forth at the head of this Note, or such other addresses as
the parties may for themselves designate in writing as provided herein
for the purpose of receiving notices hereunder. All notices shall be in
writing and shall be deemed given, in the case of notice by personal
delivery, upon actual delivery, and in the case of appropriate mail or
courier service, upon deposit with the U.S. Postal Service or delivery to
the courier service.
(q) LIABILITY IF MORE THAN ONE BORROWER. If more than one person or
entity executes this Note as a Borrower, all of said persons or entities
are jointly and severally liable hereunder.
(r) ENTIRE AGREEMENT. This Note and the other Loan Documents
constitute the entire understanding between Borrower, the Guarantors, if
any, and the Lender and to the extent that any writings not signed by the
Lender or oral statements or conversations at any time made or had shall be
inconsistent with the provisions of this Note and the other Loan Documents,
the same shall be null and void.
IN WITNESS WHEREOF, the Borrower and each Guarantor has executed
this instrument the date first above written.
Electronic Hardware Corp.
BORROWER
SEAL
/s/ Andrew Franzone
------------------------------
by: Andrew Franzone, President
ATTEST:
/s/ Andrew Franzone
Attorney in Fact
/s/ Harry Goodman
- ------------------------
Harry Goodman, Secretary
- 7 -
<PAGE>
Allen Field Co. Inc.
/s/ Andrew Franzone
------------------------------
by: Andrew Franzone, President
/s/A. Franzone /s/A. Franzone
Attorney in Fact for Attorney in Fact for
/s/Andrew Franzone /s/Harry Goodman /s/ David Kassel
- -------------------- ----------------------- -----------------------
Andrew Franzone Harry Goodman David Kassel
STATE OF NEW YORK}
ss:
COUNTY OF NASSAU}
On February 21, 1997, before me personally came Andrew Franzone,
to me known who, being by duly sworn, did depose and say that he resides
at BX 651 Strathmore Ct, Remsenberg, NY 11960; that he is the President
of Electronic Hardware Corp., the corporation described in and which
executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation; and that he signed his name thereto by like order.
/s/ Carol Lotardo
----------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 1998
STATE OF NEW YORK}
ss:
COUNTY OF NASSAU}
On February 21, 1997, before me personally came Andrew Franzone,
to me known who, being by duly sworn, did depose and say that he resides
at BX 651 Strathmore Ct, Remsenberg, NY 11960; that he is the President
of Allen Field Co. Inc., the corporation described in and which executed
the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it
was so affixed by order of the Board of Directors of said corporation;
and that he signed his name thereto by like order.
/s/ Carol Lotardo
----------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 1998
- 8 -
<PAGE>
STATE OF NEW YORK}
ss:
COUNTY OF NASSAU}
On February 21, 1997, before me personally came Andrew Franzone,
to me known to be the individual described in and who executed the
foregoing loan promissory note, and acknowledged that he executed the
same.
/s/ Carol Lotardo
---------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 1998
ATTORNEY-IN-FACT
ACKNOWLEDGMENT
STATE OF NEW YORK}
ss:
COUNTY OF NASSAU}
On the 21st day of February, 1997, before me personally came Andrew
Franzone, to me personally known to be the person described and appointed
attorney-in-fact in and by a certain power-of-attorney executed by Harry
Goodman dated January 8, 1997 (or to be recorded in the office of of
County simultaneously with the foregoing instrument), and acknowledged to
me that he has executed the foregoing instrument as the act of said
/s/ Carol Lotardo
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 1998
ATTORNEY-IN-FACT
ACKNOWLEDGMENT
STATE OF NEW YORK}
ss:
COUNTY OF NASSAU}
On the 21st day of February, 1997, before me personally came Andrew
Franzone, to me personally known to be the person described and appointed
attorney-in-fact in and by a certain power-of-attorney executed by David
Kassel dated January 8, 1997 (or to be recorded in the office of
__________________ of______________________ County simultaneously with the
foregoing instrument), and acknowledged to me that he has executed the
foregoing instrument as the act of said
/s/ Carol Lotardo
---------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 1998
<PAGE>
SECURITY AGREEMENT (CHATTEL MORTGAGE)
THIS AGREEMENT, made the day of February 21, 1997 under the laws of the state
of New York
BETWEEN Electronic Hardware Corp. herein called the Debtor
whose business address is (if none, write "none")
320 Broad Hollow Road, Farmingdale, NY 11735
and whose resident address is
and Long Island Development Corporation herein called the Secured Party
whose address is 255 Glen Cove Road,
Carle Place, N.Y.
WITNESSETH:
To secure the payment of an indebtedness in the amount of
$250,000.00 with interest, payable as follows:
120 monthly installments, with interest at 7% per
annum, the first of which is payable on March 1, 1997 and
monthly thereafter up to and including February 1, 2007.
as evidenced by a note or notes of even date herewith, and also to secure
any other indebtedness or liability of the Debtor to the Secured Party
direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, including all future advances or loans
which may be made at the option of the Secured Party, (all hereinafter
called the "obligations") Debtor hereby grants and conveys to the Secured
Party a security interest in, and mortgages to the Secured Party,
(a) the property described in the schedule herein which the
Debtor represents will be used primarily
/ / for personal, family or household purposes
/ / in farming operations /X/ in business or other use
(b) all property, goods and chattels of the same classes as
those scheduled, acquired by the Debtor subsequent to the execution of
this agreement and prior to its termination. (If the property described
in the Schedule is for personal, family or household purposes then no
security attaches under this section (b) unless the debtor acquires
rights in them within 10 days after the Secured Party gives value.)
(c) all proceeds thereof, if any,
(d) all substitutions, replacements and accessions thereto (the
foregoing (a), (b), (c) and (d) hereinafter called the collateral).
1. DEBTOR WARRANTS, COVENANTS AND AGREES AS FOLLOWS:
PAYMENT 1a To pay and perform all of the obligations secured
by this agreement according to their terms.
DEFEND 1b To defend the title to the collateral against all
TITLE persons and against all claims and demands whatsoever,
which collateral, except for the security interest granted
hereby, is lawfully owned by the Debtor and is now free
and clear of any and all liens, security interests,
claims, charges, encumbrances, taxes and assessments
except as may be set forth in the schedule.
ASSURANCE 1c On demand of the secured party to do the
OF TITLE following; furnish further assurance of title, execute any
written agreement or do any other acts necessary to
effectuate the purposes and provisions of this agreement,
execute any instrument or statement required by law or
otherwise in order to perfect, continue or terminate the
security interest of the Secured Party in the collateral
and pay all costs of filing in connection therewith.
POSSESSION 1d To retain possession of the collateral during the
existence of this agreement and not to sell, exchange,
assign, loan, deliver, lease, mortgage or otherwise
dispose of same without the written consent of the Secured
Party.
LOCATION 1e To keep the collateral at the location specified
in the schedule and not to remove same (except in the
usual course of business for temporary periods) without
the prior written consent of the Secured party.
LIENS 1f To keep the collateral free and clear of all
liens, charges, encumbrances, taxes and assessments.
TAXES 1g To pay, when due, all taxes, assessments and
license fees relating to the collateral.
REPAIRS 1h To keep the collateral, at Debtor's own cost and
expense, in good repair and condition and available for
inspection by the Secured Party at all reasonable times.
INSURANCE 1i To keep the collateral fully insured against
loss by fire, theft and other casualties, Debtor shall
give immediate written notice to the Secured Party and to
insurors of loss or damage to the collateral and shall
promptly file proofs of loss with insurors.
2. THE PARTIES FURTHER AGREE
NON-WAIVER 2a Waiver of or acquiescence in any default by the
Debtor, or failure of the Secured Party to insist upon
strict performance by the Debtor of any warranties or
agreements in this security agreement, shall not
constitute a waiver of any subsequent or other default
or failure.
NOTICES 2b Notices to either party shall be in writing and
shall be delivered personally or by mail addressed to the
party at the address herein set forth or otherwise
designated in writing.
LAW 2c The Uniform Commercial Code shall govern the
APPLICABLE rights, duties and remedies of the parties and any
provisions herein declared invalid under any law shall not
invalidate any other provision or this agreement.
DEFAULT 2d The following shall constitute a default by
Debtor:
non-payment Failure to pay the principal or any installment of
violation principal or of interest on the indebtedness or any notes
misrepresentation when due. Failure by Debtor to comply with or perform
levy-insolvency any provision of this agreement. False or misleading
death representations or warranties made or given by Debtor in
impairment of connection with this agreement. Subjection of the
security collateral to levy of execution or other judicial process.
Commencement of any insolvency proceeding by or against
the Debtor. Death of the Debtor. Any reduction in the
value of the collateral or any act of the Debtor which
imperils the prospect of full performance or satisfaction
of the Debtor's obligations herein.
REMEDIES ON 2e Upon any default of the Debtor and at the option
DEFAULT of the Secured Party, the obligations secured by this
acceleration agreement shall immediately become due and payable in
full without notice or demand and the Secured Party shall
have all the rights, remedies and privileges with respect
to repossession, retention and sale of the collateral and
disposition of the proceeds as are accorded by the
applicable sections of the Uniform Commercial Code
respecting "Default".
assembling Upon any default and upon demand, Debtor shall assemble
collateral the collateral and make it available to the Secured Party
attorneys' fees at the place and at the time designated in the demand.
etc. Upon any default, the Secured Party's reasonable
attorneys' fees and the legal and other expenses for
pursuing, searching for, receiving, taking, keeping,
storing, advertising, and selling the collateral shall be
chargeable to the Debtor.
deficiency The Debtor shall remain liable for any deficiency
resulting from a sale of the collateral and shall pay any
such deficiency forthwith on demand.
monies If the Debtor shall default in the performance of any of
advanced the provisions of this agreement on the Debtor's part to
be performed, Secured Party may perform same for the
Debtor's account and any monies expended in so doing shall
be chargeable with interest to the Debtor and added to the
indebtedness secured hereby.
FINANCING 2f The Secured Party is hereby authorized to file a
STATEMENT Financing Statement.
CAPTIONS 2g The Captions are inserted only as a matter of
convenience and for reference and in no way define, limit
or describe the scope of this agreement nor the intent of
any provision thereof.
[end of page]
<PAGE>
The terms, warranties and agreements herein contained shall bind
and inure to the benefit of the respective parties hereto, and their
respective legal representatives, successors and assigns.
The gender and number used in this agreement are used as a
reference term only and shall apply with the same effect whether the
parties are of the masculine or feminine gender, corporate or other form,
and the singular shall likewise include the plural.
This agreement may not be changed orally.
IN WITNESS WHEREOF, the Parties have respectively signed and
sealed these presents the day and year first above written.
Electronic Hardware Corp.
Witness:/s/ [illegible] /s/ Andrew Franzone
----------------------------
by: Andrew Franzone, President
Long Island Development Corporation
/s/ Eileen Leavell
-----------------------------
By: Eileen Leavell, Asst. Sec'y
SCHEDULE
Describe items of collateral, the address where each item will
be located and describe any prior liens, etc., and the amounts due
thereon. If items are crops or goods affixed or to be affixed to real
estate describe the real estate and state the name and address of the
owner of record thereof.
Items Location, etc.
----- --------------
all personal property, including and without limitation, all present and
future accounts receivable, machinery, equipment, inventory (raw and
finished), contract rights, instruments, chattel paper, intangibles,
and/or fixtures, now existing or hereafter acquired or created, and all
additions and accessions thereto and exchanges and proceeds thereof.
The chief place of business of the Debtor, if other than stated
in this agreement, is:
GUARANTEE
The undersigned guarantees prompt and full performance and payment
according to the tenor of the within agreement, to the holder hereof, and, in
the event of default, authorizes any holder hereof to proceed against the
undersigned, for the full amount due including reasonable attorneys' fees, and
hereby waives presentment, demand, protest, notice of protest, notice of
dishonor and any and all other notices or demand of whatever character to which
the undersigned might otherwise be entitled. The undersigned further consents to
any extension granted by any holder and waives notice thereof. If more than one
guarantor, obligation of each shall be joint and several.
WITNESS the hand and seal of the undersigned this February 21, 19 .
Allen Field Co. Inc.
/s/ Andrew Franzone (L.S.)
---------------------------------
by: Andrew Franzone, President
Address
---------------------------------
SECURITY AGREEMENT
CHATTEL MORTGAGE
================================================================================
TO
================================================================================
DATED,
================================================================================
================================================================================
To perfect lien, file UCC 1 (see UCC Section 9-410)
N.Y.: CONSUMER GOODS OR FARM CONNECTED COLLATERAL:
--resident debtor; with filing officer in county of debtor's residence.
--non resident debtor; Dept. of state: if debtor has a place of
business in only one county in N.Y., also with filing officer of such
county.
--crops: Dept. of state and also with filing officer in county where
land, on which crops are grown, lies.
FIXTURES attached to realty; in county where land lies.
ALL OTHER CASES; Dept. of state: if debtor has a place of business in
only one county in N.Y., also with filing officer in such county.
'filing officer'; in N.Y.C., the City Register of the county:
elsewhere in state, the county clerk.
N.J.: CONSUMER GOODS OR FARM CONNECTED COLLATERAL:
--with clerk or county of debtor's residence.
--if non resident debtor, in county where goods are kept.
--crops: in county where land lies.
FIXTURES attached to realty; with register of county where land
lies or with county clerk if no register.
ALL OTHER COLLATERAL; with secretary of state.
CONN.: FIXTURES attached to realty; with clerk of town or city where land lies.
ALL OTHER COLLATERAL; with secretary of state.
<PAGE>
MORTGAGE
THIS MORTGAGE, made the 28th day of November, nineteen hundred and 95
BETWEEN DAVID L. KASSEL AND HARRY GOODMAN
d/b/a/ K & G REALTY ASSOCIATES 320 Broad Hollow Road
Farmingdale, New York 11735
, the Mortgagor,
and LONG ISLAND COMMERCIAL BANK, a New York banking corporation, having an
office at One Suffolk Square, Islandia, Suffolk County, State of New York
, the Mortgagee,
WITNESSETH, that to secure payment of an indebtedness in the sum of Six Hundred
Ten Thousand and 00/100 ($610,000.00)--------------------------------------
dollars
lawful money of the United States, to be paid with interest thereon to be
computed from the date hereof, according to a certain bond, note or obligation
bearing even date herewith, the Mortgagor hereby mortgages to the Mortgagee
All that certain plot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being in the
See Schedule A attached hereto and made a part hereof
page 1 of 6 pages
<PAGE>
TOGETHER with all right, title and interest of the Mortgagor in and to the land
lying in the streets and roads in front of and adjoining said premises;
TOGETHER with all fixtures, chattels and articles of personal property now and
hereafter attached to or used in connection with said premises, including but
not limited to furnaces, boilers, oil burners, radiators and piping, coal
stokers, plumbing and bathroom fixtures, refrigeration, air conditioning and
sprinkler systems, wash-tubs, sinks, gas and electric fixtures, stoves, ranges,
awnings, screens, window shades, elevators, motors, dynamos, refrigerators,
kitchen cabinets, incinerators, plants and shrubbery and all other equipment and
machinery, appliances, fittings, and fixtures of every kind in or used in the
operation of the buildings standing on said premises, together with any and all
replacements thereof and additions thereto;
TOGETHER with all awards heretofore and hereafter made to the Mortgagor for
taking by eminent domain the whole or any part of said premises or any easement
therein, including any awards for changes of grade of streets, which said awards
are hereby assigned to the Mortgagee, who is hereby authorized to collect and
receive the proceeds of such awards and to give proper receipts and acquittances
therefor, and to apply the same toward the payment of the mortgage debt,
notwithstanding the fact that the amount owing thereon may not then be due and
payable; and the said Mortgagor hereby agrees, upon request, to make, execute
and deliver any and all assignments and other instruments sufficient for the
purpose of assigning said awards to the Mortgagee, free, clear and discharged of
any encumbrances of any kind or nature whatsoever.
AND the Mortgagor covenants with the Mortgagee as follows:
1. That the Mortgagor will pay the indebtedness as hereinbefore
provided.
2. That the Mortgagor will keep the buildings now erected and hereafter
erected on said premises insured as may be required by the Mortgagee from time
to time against loss by fire, by flood if the premises are located in an area
identified by the Secretary of Housing and Urban Development as an area having
special flood hazards and in which flood insurance has been made available under
the National Flood Insurance Act of nineteen hundred sixty-eight and other
hazards, casualties and contingencies, in such amounts and in such companies and
for such periods as the Mortgagee shall require, and upon failure to so insure
the Mortgagee may have such insurance written and pay the premium thereon, and
the principal sum, together with the amount paid for such insurance, shall at
the option of the Mortgagee, immediately become due and payable. That the
Mortgagor will give immediate notice by mail to the Mortgagee of any fire,
damage or other casualty to the premises or of any conveyance, transfer, or
change of ownership of the premises. If the premises covered hereby or any part
thereof, shall be damaged by fire or other hazard against which insurance is
held as hereinbefore provided, the amounts paid by any insurance company
pursuant to the contract of insurance shall, to the extent of the indebtedness
then remaining unpaid, be paid to the Mortgagee, and, at its option, may be
applied to the debt or released for the repairing or rebuilding of the premises.
3. That no building on the premises shall be removed, altered or
demolished and no fixtures or personal property covered by this mortgage shall
be removed or demolished, without the written consent of the Mortgagee. The
Mortgagor, for himself, his heirs and all subsequent owners of said premises,
covenants and agrees with the Mortgagee and the successors and assigns of the
Mortgagee, that he will keep and maintain the mortgaged premises in a good and
complete state of repair and will promptly comply with all the requirements of
the Federal, State and Municipal governments or of any departments or bureaus
thereof having jurisdiction; and in default thereof the Mortgagee may enter
premises and make such repairs as may be necessary or for the purpose of
complying with any governmental or departmental regulations or requirements and
the cost thereof shall be a lien on said premises secured by this mortgage and
shall be payable on demand, with interest at the maximum interest rate permitted
under law; that neither the value of the mortgaged premises nor the lien of this
mortgage will be diminished or impaired in any way by any act or omission of the
Mortgagor, his heirs, or by any subsequent owner of said premises, and that he
will not do or permit to be done to, in, upon or about said premises or any part
thereof, anything that may in any wise substantially impair the value thereof,
or substantially weaken, diminish or impair the security of this mortgage.
4. That the Mortgagor will pay all taxes, assessments, sewer rents,
water rates and other governmental or municipal charges, fines or impositions,
for which provision has not been made as hereinbefore stated and in default
thereof the Mortgagee may pay the same; and that the Mortgagor will promptly
deliver the official receipts therefor to the Mortgagee upon its request.
5. That the Mortgagor within five days upon request in person or within
ten days upon request by mail will furnish a written statement duly acknowledged
of the amount due on this mortgage and whether any offsets or defenses exist
against the mortgage debt.
6. That notice and demand or request may be in writing and may be
served in person or by mail.
7. That the Mortgagor warrants the title to the premises.
8. That the fire insurance policies required by paragraph No. 2 above
shall contain the usual extended coverage endorsement; that in addition thereto
the Mortgagor, within thirty days after notice and demand, will keep the
premises insured against war risk and any other hazard that may reasonably be
required by the Mortgagee. All of the provisions of paragraph No. 2 above
relating to fire insurance and the provisions of Section 254 of the Real
Property Law construing the same shall apply to the additional insurance
required by this paragraph.
9. That in case of a foreclosure sale, said premises, or so much
thereof as may be affected by this mortgage, may be sold in one parcel.
10. That the Mortgagee, its successors or assigns, in any action to
foreclose this mortgage, shall be entitled as a matter of right and without
regard to the value or the premises above-described or to the solvency of the
Mortgagor or of any owner of said premises, upon application to any court having
jurisdiction, to the appointment of a receiver of the rents and profits of said
premises and of the rental value of the portions, if any, of said premises
occupied by the owner at the time being, which is to be fixed and which the
owner agrees to pay, without notice to the Mortgagor, his heirs, administrators,
successors or assigns; and in such event the said rents and profits and rental
value are hereby assigned to the holder of this mortgage as further security for
the payment of the said indebtedness.
page 2 of 6 pages
<PAGE>
11. That the whole of said principal sum and the interest shall become
due at the option of the Mortgagee: (a) after failure to exhibit to the
Mortgagee, within ten days after demand, receipts showing payment of all taxes,
water rates, sewer rents and assessments; or (b) after the actual or threatened
alteration, demolition or removal of any building on the premises without the
written consent of the Mortgagee; or (c) after the assignment of the rents of
the premises or any part thereof without the written consent of the Mortgagee;
or (d) if the buildings on said premises are not maintained in reasonably good
repair; or (e) after failure to comply with any requirement or order or notice
of violation of law or ordinance issued by any governmental department claiming
jurisdiction over the premises within three months from the issuance thereof; or
(f) if on application of the Mortgagee two or more fire insurance companies
lawfully doing business in the State of New York refuse to issue policies
insuring the buildings on the premises; or (g) in the event of the removal,
demolition or destruction in whole or in part of any of the fixtures, chattels
and articles of personal property at least equal in quality and condition to
those replaced, free from security interests or other encumbrances thereon and
free from any reservation of title thereto; or (h) after thirty days' notice to
the Mortgagor, in the event of the passage of any law deducting form the value
of land for the purposes of taxation any lien thereon, or changing in any way
the taxation of mortgages or debts secured thereby for state or local purposes;
or (i) after default in the payment of any installment of principal or of
interest for fifteen days; or (j) after default in the payment of any tax, water
rate, sewer rent or assessment for thirty days after notice and demand (An
assessment which has been made payable in installments at the application of the
Mortgagor or lessee of the premises shall nevertheless, for the purpose of this
paragraph, be deemed due and payable in its entirety on the day the first
installment becomes due or payable or a lien.); or (k) after default after
notice and demand either in assigning and delivering the policies insuring the
buildings against loss by fire or in reimbursing the Mortgagee for premiums paid
on such insurance, as hereinbefore provided; or (l) after default upon request
in furnishing a statement of the amount due on the Mortgagee and whether any
offsets or defenses exist against the mortgage debt, as hereinafter provided; or
(m) the Mortgagor shall fail to keep, observe or perform any agreements,
covenants or conditions contained in this Mortgage, the Note secured hereby, or
other agreement delivered by the Mortgagor, or if any of the following events
occurs with respect to any obligor, maker, or guarantor of said indebtedness
(each and all of whom, including the undersigned, are included in the term
"them" as hereinafter used in this paragraph):
(1) Dissolution (being a partnership or corporation);
(2) Insolvency, as defined in the Bankruptcy Code, as
amended;
(3) Assignment for the benefit of creditors;
(4) Appointment of a committee of any creditors or
liquidating agent;
(5) Granting a security interest or mortgage in any property
mortgaged to the Mortgagee herein;
(6) The whole or partial suspension or liquidation or their
usual business;
(7) Making any misrepresentation to Mortgagee for the purpose
of obtaining credit or an extension of credit;
<PAGE>
(8) Commencement of any proceedings, suit or action (at
law, or in equity, or under any of the provisions of
any Bankruptcy Code or amendments thereto, or any
other insolvency act or law, state or federal, now or
hereafter existing) for adjudication as a bankrupt,
reorganization, composition, extension, arrangement,
wage earners' plan, receivership, liquidation, or
dissolution which is not dismissed within 60 days
from the date initiated, by or against any of them;
(9) Application by any of them for the appointment, or
the appointment in any jurisdiction, at law or in
equity, of any receiver, conservator, rehabilitator
or similar officer or committee of any of them or of
the mortgaged property;
(10) Issuance of any tax assessment by the United States or
any state not discharged within 30 days;
(11) Transfer of title;
then, in any of those events, the said indebtedness, although not yet due, shall
without notice or demand, forthwith become and be immediately due and payable,
notwithstanding any time allowed for the payment of said indebtedness under any
instrument evidencing the same, or under any mortgage, security agreement or
other agreement executed in connection with the indebtedness.
12. The Mortgagee may, at its option, upon or at any time after default
in the prompt payment of the indebtedness, or any other liability of the
undersigned to the Mortgagee, whether due by acceleration as hereinabove
provided or otherwise, proceed to enforce payment of the same and exercise any
of, or all of the rights and remedies afforded the Mortgagee by applicable law
or any document executed in connection with the indebtedness or otherwise.
13. That the Mortgagor hereby assigns to the Mortgagee the rents,
issues and profits of the premises as further security for the payment of said
indebtedness, and the Mortgagor grants to the Mortgagee the right to enter upon
and to take possession of the premises for the purpose of collecting the same
and to let the premises or any part thereof, and to apply the rents, issues and
profits, after payment of all necessary charges and expenses, on account of said
indebtedness. This assignment and grant shall continue in effect until this
mortgage is paid. The Mortgagee hereby waives the right to enter upon and to
take possession of said premises for the purpose of collecting said rents,
issues and profits, and the Mortgagor shall be entitled to collect and receive
said rents, issues and profits until default under any of the covenants,
conditions or agreements contained in this mortgage, and agrees to use such
rents, issues and profits in payment of principal and interest becoming due on
this mortgage and in payment of taxes, assessments, sewer rents, water rates and
carrying charges becoming due against said premises, but such right of the
Mortgagor may be revoked by the Mortgagee upon any default, on five days'
written notice. The Mortgagor will not, without the written consent of the
Mortgagee, receive or collect rent from any tenant of said premises or any part
thereof for a period of more than one month in advance, and in the event of any
default under this mortgage will pay monthly in advance to the Mortgagee, or to
any receiver appointed to collect said rents, issues and profits, the fair and
reasonable rental value for the use and occupation of said premises or of such
part thereof as may be in the possession of the Mortgagor, and upon default in
any such payment will vacate and surrender the possession of said premises to
the Mortgagee or to such receiver, and in default
page 3 of 6 pages
<PAGE>
thereof may be evicted by summary proceedings. Pursuant to Section 291-f the
Real Property Law, the Mortgagor, or any subsequent owner shall not amend,
cancel, or otherwise modify any lease of said premises or of any part thereof,
or make any new lease or lease renewal or extension, or accept prepayments of
rent, or assign any rents whether or not under any such lease without the
consent in writing of the holder of this mortgage.
14. If any action or proceeding be commenced (except an action or
proceeding to foreclose this mortgage or to collect the debt secured thereby as
to which Paragraph 19 hereof shall be applicable), to which action or proceeding
the holder of this mortgage is made a party, or in which it becomes necessary to
defend or uphold the lien of this mortgage, all sums paid by the holder of this
mortgage for the expense of any litigation to prosecute or defend the rights and
lien created by this mortgage (including, reasonable counsel fees), shall be
paid by the Mortgagor, together with interest thereon at the same rate then
applicable to the debt secured hereby and any such sum and the interest thereon
shall be lien on said premises, prior to any right, or title to, interest in or
claim upon said premises attaching or accruing subsequent to the lien of this
mortgage and shall be deemed to be secured by this mortgage and by the note
which it secures.
15. That the Mortgagor will, in compliance with Section 13 of the Lien
Law, receive the advances secured hereby and will hold the right to receive such
advances as a trust fund to be applied first for the purpose of paying the cost
of the improvement and will apply the same first to the payment of the cost of
the improvement before using any part of the total of the same for any other
purpose.
16. Mortgagor agrees that neither it nor any guarantor will assert a
defense in any action to recover a deficiency judgment following a foreclosure,
that the sale price realized at the sale was less than the fair market value.
17. That in order more fully to protect the security of this mortgage,
together with and in addition to the monthly payments of principal and interest
payable under the terms of the note secured hereby, the Mortgagor will upon
demand pay to the Mortgagee on the 1st day of each month until the said note is
fully paid, an installment of the taxes and assessments levied or to be levied
against the premises covered by this mortgage. Said installments shall be equal
to 1/12th of the annual taxes and assessments as estimated by the Mortgagee. The
Mortgagee shall hold such monthly payments in trust to apply the same against
such taxes and assessments when due, with the right, however, to the Mortgagee
to apply, after default, any sums so received, as hereinafter provided. Such
payments and all payments to be made under the note secured hereby shall be
added together and the aggregate amount thereof shall be paid by the Mortgagor
each month in a single payment, to be applied by the Mortgagee to the following
items in the order set forth:
1. Taxes and assessments.
2. Interest on the note secured hereby.
3. Amortization of the principal of said note.
Any deficiency in the amount of any such aggregate monthly payment shall, unless
made good by the Mortgagor prior to the due date of the next such payment,
constitute a default under this mortgage.
If the total of the payments made by the Mortgagor for taxes and assessments
shall exceed the amount of payments actually made by the Mortgagee for taxes and
assessments, such excess shall be credited by the Mortgagee on subsequent
payments of the same nature to be made by the Mortgagor. If, however, said
monthly payments made by the Mortgagor shall not be sufficient to pay taxes and
assessments, when the same shall become due and payable, then the Mortgagor
shall pay to the Mortgagee any amount necessary to make up the deficiency, on or
before the date when payment of such taxes and assessments shall be due. If at
any time the Mortgagor shall tender to the Mortgagee in accordance with the
provisions of the note secured hereby, full payment of the entire indebtedness
represented thereby, the Mortgagee shall credit to the account of the Mortgagor
any balance remaining in the funds accumulated by the Mortgagee for the payment
of taxes and assessments and refund any excess. If there shall be a default
under any of the provisions of this mortgage and an action or proceeding shall
be commenced to foreclose this mortgage, the Mortgagee shall be, and hereby is,
authorized and empowered to apply, at the time of the commencement of such
action or proceeding, or at any time thereafter, the balance then remaining in
the funds accumulated for taxes and assessments as a credit against the amount
of principal then remaining under said note. The Mortgagee may at its option,
terminate the requirement for payment of such tax installments, on notice to the
then owner of the mortgaged premises.
18. That the Mortgagor does hereby agree, that if default be made in
the payment of the said indebtedness when due, pursuant to the terms hereof the
Mortgagee shall be entitled to receive interest on the entire unpaid principal
sum, at the time of such default, at the rate of 20% per annum or at a rate per
annum which shall be 4% above the highest rate of interest set forth in the
obligation secured by the mortgage, whichever is the greater, to be computed
from the due date and until the actual receipt and collection of the entire
indebtedness. This charge shall be added to and shall be deemed secured by the
mortgage. The within clause, however, shall not be construed as an agreement or
privilege to extend the mortgage, nor as a waiver of any other right or remedy
accruing to the Mortgagee by reason of any such default. In no event, however,
shall the interest on this loan be higher than the highest rate of interest
permitted under applicable state or federal law.
19. That if this mortgage is referred to attorneys for collection or
foreclosure, the Mortgagor shall pay all sums, including reasonable attorneys'
fees incurred by the Mortgagee and expenses, together with all statutory costs,
disbursements and allowances, with or without the institution of an action or
proceeding. All such sums with Interest thereon at the rate set forth herein
shall be deemed to be secured by the mortgage and collectible out of the
mortgaged premises.
20. In the event that any payment required in the bond, note or
obligation secured hereby shall become overdue for a period in excess of ten
days, a "late charge" of five cents for every dollar of any installment so
overdue may be charged by the Mortgagee for the purpose of defraying the expense
of handling such delinquent payment. Failure to pay such "late charge" shall be
deemed a default under the terms of this mortgage.
21. The Mortgagor shall have the privilege of prepaying the principal,
in whole or in part, on any installment date without penalty. Partial
prepayments must be in multiples of the monthly
installment of principal and shall be paid in inverse order of maturity.
Interest shall be payable to dates of any such prepayment.
page 4 of 6 pages
<PAGE>
22. It is expressly understood and agreed that this mortgage shall
become due and payable at the option of the Mortgagee. If the Mortgagor shall
convey away said mortgaged premises, or any interest therein or if the title
thereto shall become vested in any other person or corporation in any manner
whatsoever, including without limitation, by operation of law.
23. Mortgagor agrees to provide Mortgagee with current financial and
operating statements covering the operations of the Mortgagor and all guarantors
once each year, within 90 days after end of fiscal year, during the term of this
mortgage.
24. If this mortgage is executed by a corporation, that the execution
of this mortgage has been duly authorized by the Board of Directors of the
Mortgagor.
25. This mortgage shall constitute a Security Agreement within the
meaning of the Uniform Commercial Code with respect to the fixtures and items of
personal property referred to in this mortgage, and with respect to all
replacements thereof, substitutions therefor or additions thereto (all of such
items being sometimes herein referred to as the "Collateral"), and Mortgagor
hereby grants Mortgagee a security interest in all such Collateral to secure the
payment and performance of the Mortgagor's obligations under the note, this
mortgage, and any other documents executed in connection therewith. The
Mortgagor hereby authorizes the Mortgagee to file financing and continuation
statements with respect to the Collateral without the signature of the Mortgagor
whenever lawful; otherwise the Mortgagor agrees to execute such financing and
continuation statements as the Mortgagee may request. In the event of a default
under the note, this mortgage, or any other documents executed in connection
therewith, the Mortgagee may, in addition to all other rights or remedies it may
have in such event, exercise any right or remedy with respect to the Collateral
which it may have as a Secured Party under the provisions of the Uniform
Commercial Code or otherwise, including, without limitation, Section 9-501(4) of
the Uniform Commercial Code, and shall have the option of proceeding as to both
real and personal property in accordance with its rights and remedies in respect
of real property, in which event the default provisions of the Uniform
Commercial Code shall not apply. The parties agree that in the event the
Mortgagee elects to proceed with respect to the Collateral separately from the
real property, five (5) days notice of the sale of the Collateral shall be
reasonable notice. The reasonable expenses of retaking, holding, preparing for
sale, selling and the like incurred by the Mortgagee shall include, but not be
limited to, reasonable attorneys' fees and legal expenses incurred by the
Mortgagee. The Mortgagor agrees that, without the written consent of the
Mortgagee, the Mortgagor will not remove or permit to be removed from the
mortgaged premises any of the Collateral except either for replacement by items
of substantially the same utility and value or temporarily for repair. All
replacements, renewals and additions to the Collateral shall be and become
immediately subject to the security interest of this mortgage and this agreement
and be covered thereby. The Mortgagor shall, from time to time on request of the
Mortgagee, deliver to the Mortgagee an inventory of the Collateral in reasonable
detail.
26. This mortgage secures the note executed this date in like amount
and all amendments, replacements, substitutions and extensions thereof.
27. The invalidity or unenforceability of any one or more sentences or
sections in this Mortgage shall not affect the validity or enforceability of the
remaining portions of this Mortgage.
28. This mortgage may not be changed, or terminated, or any of its
provisions waived orally. The covenants contained in this mortgage shall run
with the land and bind the Mortgagor, the heirs, personal representatives,
successors and assigns of the Mortgagor and all subsequent owners,
encumbrancers, tenants and subtenants of the premises, and shall enure to the
benefit of the Mortgagee, the successors and assigns of the Mortgagee and all
subsequent holders of this mortgage. The word "Mortgagor" shall be construed as
if it read "Mortgagors" and the word "Mortgagee" shall be construed as if it
read "Mortgagees" whenever the sense of this mortgage so requires.
IN WITNESS WHEREOF, this mortgage has been duly executed by the
Mortgagor.
WITNESS:
DAVID L. KASSEL AND HARRY GOODMAN
d/b/a K&G REALTY ASSOCIATES
By: /s/ David Kassel (L.S.)
-------------------------------------------
David L. Kassel by Harry Goodman
his attorney-in-fact
By: (L.S.)
-------------------------------------------
Harry Goodman
page 5 of 6 pages
<PAGE>
<TABLE>
<S> <C>
STATE OF NEW YORK, COUNTY OF SUFFOLK ss: STATE OF NEW YORK, COUNTY OF ss:
On the 28th day of November 1995, before me On the day of 19 , before me personally
personally came Harry Goodman came
to me known to be the individual described in and who to me known to be the individual described in and who
executed the foregoing instrument, and acknowledged executed the foregoing instrument, and acknowledged
that executed the same. that executed the same.
STATE OF NEW YORK )
ss.:
COUNTY OF Suffolk )
On November 28, 1995 before me came Harry Goodman to me known and known to me to
be the attorney in fact of David L. Kassel the individual described in, and who
by his attorney in fact executed the foregoing instrument, and duly acknowledged
before me that he executed the same as the act and deed of David L. Kassel
therein described, and for the purposes therein mentioned by virtue of a power
of attorney duly executed by David L. Kassel, dated the ____ day of
_______________, 1995 and intended to be recorded immediately prior hereto.
Mortgage SECTION 94
BLOCK 1
LOT 81.1
TITLE NO. COUNTY OR TOWN Suffolk
================================================
David L. Kassell and
Harry Goodman
d/b/a K&G Realty Associates
TO
LONG ISLAND COMMERCIAL BANK
RETURN BY MAIL TO:
JOHN C. TSUNIS, ESQ.
801 Motor Parkway
Hauppauge, NY 11788
Zip No.
RESERVE THIS SPACE FOR USE OF RECORDING OFFICE
page 6 of 6 pages
<PAGE>
RIDER TO MORTGAGE dated November 28, 1995 between DAVID L. KASSEL AND HARRY
GOODMAN d/b/a K & G REALTY ASSOCIATES, Mortgagor and LONG ISLAND COMMERCIAL BANK
("BANK"), Mortgagee covering premises known as 320 Broad Hollow Road,
Farmingdale, New York
Anything in any other rider or in the printed mortgage to the contrary
notwithstanding, the provisions contained in this rider shall prevail over any
other printed or typewritten part of the mortgage.
29. The entire indebtedness secured hereby shall become due at the
option of the Bank upon the existence or creation of any subordinate mortgage
lien on the premises, prior written approval of which has not been provided by
the Bank.
30. Anything to the contrary contained herein or in the Note secured
hereby notwithstanding, under no circumstances shall the interest rate to be
paid hereunder, or under the terms of such Note exceed the maximum lawful
interest rate authorized by applicable State and Federal Law. If by the terms of
this Mortgage or the Note, Mortgagor is at any time required or obligated to pay
interest on the principal balance due under the Note at a rate in excess of such
maximum rate, the rate of interest under the Note shall be deemed to be
immediately reduced to such maximum rate and all prior interest payments in
excess of such maximum rate shall be applied and shall be deemed to have been
payments in reduction of the principal balance of the Note.
31. In the event that this Mortgage and/or note are signed by
individuals, their liability shall be joint and several.
32. The Mortgagor covenants and agrees that it will furnish to the
Mortgagee upon demand complete and accurate information as to Mortgagor's
"original purchase price" (as defined in Section 1440 (5) of the New York Tax
Law) of the Mortgaged Property together with true copies of the supporting
documentation for the purpose of determining the amount, if any, of tax ("Gains
Tax") that may be payable pursuant to Article 31-B of the New York Tax Law upon
transfer ("Transfer") by reason of a foreclosure of this Mortgage or of any
other mortgage, or by a deed in lieu of foreclosure of this Mortgage or any
other mortgage. Mortgagor covenants and agrees to deliver to Mortgagee, on
demand, a verified statement setting forth all additions to "original purchase
price" as so defined, together with true copies of additional supporting
documentation.
In the event of any sale or Transfer of the Mortgaged Property, or any
part thereof, including any sale by reason of foreclosure of this Mortgage,
Mortgagor shall comply with Article
1
<PAGE>
31-B of the New York Tax Law, and within thirty (30) days after the sale or
Transfer, furnish Mortgagee with a true and complete copy of the transferor and
transferee questionnaires, all supporting documentation, and any affidavits
required to be furnished to the taxing authorities or recording officer
applicable thereto to estimate and fix the tax, if any, payable by reason of the
Transfer and to record the deed evidencing the Transfer.
Mortgagor agrees to pay any Gains Tax that may hereafter become due and
payable with respect to any Transfer or any other sale or transfer of the
Mortgaged Property, and in default thereof Mortgagee may pay the same and the
amount of such payment shall be added to the indebtedness secured hereby and
secured by this Mortgage.
Mortgagor hereby irrevocably constitutes and appoints Mortgagee as its
attorney in fact, coupled with an interest, to prepare and deliver any
questionnaire, statement, affidavit or tax return in furtherance of any
Transfer. Mortgagee is authorized to utilize the information as to "original
purchase price" furnished to it by Mortgagor and any other information that
Mortgagee believes to be correct in the preparation of any such questionnaire,
statement affidavit or tax return.
The obligation to pay the taxes referred to herein is a personal
obligation to Mortgagor, and shall be binding upon and enforceable against the
successors and assigns of Mortgagor with the same force and effect as though
each of them had personally executed and delivered this Mortgage.
In the event Mortgagor fails or refuses to pay a tax payable by
Mortgagor after a Transfer by reason of a foreclosure of this Mortgage in
accordance with this Article, the amount of the tax and any interest or penalty
applicable thereto may, at the sole option of Mortgagee, be paid as an expense
of the sale out of the proceeds of the mortgage foreclosure sale.
These provisions shall survive any Transfer and the delivery of the
deed affecting such transfer.
Nothing contained herein relative to Article 31-B of the Tax Law shall
be deemed to grant to Mortgagor any greater rights to sell, assign or otherwise
transfer the Mortgaged Property then are expressly provided in this Mortgage.
33. (a) The Mortgagor represents and warrants that, to the best of
Mortgagor knowledge, after due inquiry and investigation, the Mortgaged Property
is not now and has not ever been used to generate, manufacture, refine,
transport, treat, store, handle, dispose, transfer, produce, process or in any
manner deal with Hazardous Materials (as hereinafter defined), and that no
Hazardous
2
<PAGE>
Materials have ever been installed, placed, or in any manner dealt with on the
Mortgaged Property, and that no owner of the Mortgage Property or any tenant,
subtenant, occupant, prior tenant, prior subtenant or prior occupant has
received any notice or advice from any governmental agency or any tenant,
subtenant or occupant with regard to Hazardous Materials on, from or affecting
the Mortgaged Property. The Mortgagor covenants that the Mortgaged Property
shall be kept free of Hazardous Materials, and shall not be used to generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer,
produce, process or in any manner deal with Hazardous Materials, and the
Mortgagor shall not cause or permit, as a result of any intentional or
unintentional act or omission on the part of the Mortgagor or any tenant or
subtenant or occupant, the installation of Hazardous Materials in the Mortgaged
Property or onto any other property or suffer the presence of Hazardous
Materials on the Mortgaged Property. The Mortgagor agrees to comply with and
ensure compliance by all tenants, subtenants and occupants with all applicable
federal, state and local laws, ordinances, rules and regulations. In the event
that the Mortgagor receives any notice or advice from any governmental agency,
any tenant, subtenant or occupant with regard to Hazardous Materials on, from or
affecting the Mortgaged Property, the Mortgagor shall immediately notify the
Mortgagee. The Mortgagor shall conduct and complete all investigations, studies,
sampling, and testing, and all remedial, removal, and other actions necessary to
clean up and remove all Hazardous Materials, in from or affecting the Mortgaged
Property in accordance with all applicable federal, state and local laws,
ordinances, rules, regulations, and policies and to the satisfaction of the
Mortgagee. For these purposes, "Hazardous Materials" shall include, without
limitation, any flammable explosives, radioactive materials, hazardous
materials, hazardous wastes, hazardous or toxic substances, or related or
similar materials, asbestos or any material containing asbestos, or any other
substance or material as defined by any Federal, State or Local environmental
law, ordinance, rule or regulation, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Section 9601, et seq.), and
in the regulations adopted and publications promulgated pursuant thereto. These
obligations and liabilities of the Mortgagor shall survive any foreclosure
involving the Mortgaged Property or the delivery of a deed in lieu of
foreclosure.
(b) The Mortgagor shall protect, indemnify and save harmless the
Mortgagee from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
reasonable attorney's fees and expenses), imposed upon or incurred by or
asserted against the Mortgagee by reason of (i) the presence, disposal, escape,
seepage, leakage, spillage, discharge, emission, release or threatened
3
<PAGE>
release of any Hazardous Materials on, from or affecting the Mortgaged Property
or any other property; (ii) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to such Hazardous
Materials; (iii) any lawsuit brought or threatened, settlement reached, or
government order relating to such Hazardous Materials; or (iv) any violation of
laws, orders, regulations, requirements, or demands of government authorities,
or any policies or requirements of the Mortgagee which are based upon or in any
way related to such Hazardous Materials including, without limitation, attorney
or consultant fees, investigation and laboratory fees, court costs, and
litigation expenses.
34. The Mortgagor agrees to the full extent permitted by law that in
case of a default on its part hereunder, neither the Mortgagor nor anyone
claiming through or under it shall or will set up, claim or seek to take
advantage or any appraisement, valuation, stay, extension or redemption laws now
or hereafter in force, in order to prevent or hinder the enforcement or
foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or
the final and absolute putting into possession thereof, immediately after such
sale, of the purchaser(s) thereat, and the Mortgagor for itself and all who may
at any time claim through or under it, hereby waives, to the full extent that it
may lawfully do so, the benefit of all such laws, and any and al] right to have
the assets comprising the Mortgaged Property marshalled upon any foreclosure of
the lien hereof and agrees that the Mortgagee or any court having jurisdiction
to foreclose such lien may sell the Mortgaged Property in part or as an
entirety. Mortgagor agrees that neither it nor any guarantor will assert a
defense in any action to recover a deficiency judgment following a foreclosure
that the sales price realized at the sale was less than the fair market value.
35. The proceeds of any award or claim for damages, direct or
consequential, payable to Mortgagor in connection with any condemnation or other
taking of all or any part of the Mortgaged Premises, whether of the unit or of
the common elements, or for any conveyance in lieu of condemnation, are hereby
assigned and shall be paid to Mortgagee. Such proceeds shall be applied by
Mortgagee to the sums secured by the Mortgage in the manner provided thereon.
36. Mortgagor shall not, except after notice to Mortgagee and with
Mortgagee's prior written consent, either partition or subdivide the Property.
37. If the Mortgagor is a partnership, Mortgagor represents and
warrants that this agreement has been duly authorized by the partners, and that
the Partnership Agreement or applicable law does not require the vote or consent
of any limited partners or other persons, or if such vote or consent is
required, that the same has been duly obtained.
4
<PAGE>
38. Any failure by Mortgagee to insist upon the strict performance by
the Mortgagor of any of the terms and provisions hereof shall not be deemed to
be a waiver of any of the terms and provisions hereof, and the Mortgagee,
notwithstanding any such failure, shall have the right thereafter to insist upon
strict performance by the Mortgagor of any and all of the terms and provisions
of the agreement to be performed by the Mortgagor. The Mortgagor shall not be
relieved of such obligation by reason of the failure of the Mortgagee to take
action to foreclose the mortgage or otherwise enforce any of the provisions of
the agreement or of any obligations secured by the agreement, or by reason of
the release, regardless of consideration, of the whole or any part of the
security held for the indebtedness secured by the agreement.
39. If stamp taxes should be required upon the bond, note or obligation
secured by this agreement, then the Mortgagor agrees that it will immediately
remit to the Mortgagee the amount of the stamp taxes held to be so due. If
Mortgagor fails to make such payment within ten (10) days after written notice
thereof, the Mortgagee is authorized to purchase the necessary stamps and add
the cost of same to the next payment due hereunder. Such payment shall be deemed
and indebtedness secured by this agreement and shall be collectible in like
manner as the principal indebtedness secured by this agreement.
40. If Mortgagor shall default in the observance or performance of any
covenant, agreement or obligation contained in this agreement, in addition to
any and all rights herein provided, Mortgagee shall have the option to make any
expenditure of money to cure such default and Mortgagor shall pay to Mortgagee,
upon demand, such sums so paid by Mortgagee with interest, at the maximum legal
rate from time of payment, and the same shall be added to the agreement
indebtedness and be secured by this agreement.
41. At or prior to any transfer of all or any portion of the premises
or any interest in the premises, whether or not such transfer is consented to by
the Mortgagee and including any sale of the premises upon a foreclosure of this
agreement, the Mortgagor shall furnish, or cause to be furnished, to the
Mortgagee either an affidavit or such other documentation as shall be required
under Section 1445 of the Internal Revenue Code of 1954, as amended (or any
successor or substitute stature of the same or similar import), in order to
allow any transferee to pay the full amount of the purchase price without
holding any portion of the purchase price as required by said Section 1445.
42. The unpaid principal balance shall, at the option of the Mortgagee,
become immediately due and payable in the event of (a) any sale or transfer of
the mortgaged premises, and/or (b) any change in the membership of any borrowing
or guaranteeing partnership.
5
<PAGE>
43. Annually or within thirty (30) days after requested by the
Mortgagee, Mortgagor shall provide Mortgagee with signed copies of the most
currently filed income tax returns;
Annually or within thirty (30) days after requested by the Mortgagee,
Mortgagor shall provide Mortgagee with signed personal financial statements of
David L. Kassel, Larry Goodman and K & G Realty Associates.
Within ninety (90) days after fiscal year end date, Mortgagor shall
provide Mortgagee with a compiled fiscal year end balance sheet, income
statement and statement of changes of financial position; and
Within sixty (60) days after requested by Mortgagee, Mortgagor will
provide Mortgagee with any other financial reports as may be reasonably required
by Mortgagee.
44. In the event of foreclosure of this agreement or other transfer of
title to the mortgaged property in extinguishment of the debt secured hereby,
all right, title and interest of the Mortgagor in and to any insurance policies
then in force shall pass to the Mortgagee.
45. The Mortgagor hereby grants and conveys to the Mortgagee a security
interest in and mortgages to the Mortgagee all fixtures, equipment, accounts
receivables, bank accounts, inventory, and any other personal property whether
now owned, or hereafter acquired by the Mortgagor or the Mortgagor's successors
in interest, including all substitutions thereof now or hereafter attached to or
used in connection with the premises herein described.
46. The mailing of a written notice and demand, by depositing it in a
sealed, postpaid envelope, certified mail return receipt requested, addressed to
the owner of said property and forwarded to the last address actually furnished
to the holder of this agreement, or in default thereof, directed to said land in
any post office, station or letterbox, shall be sufficient notice and demand in
any case arising under this instrument.
47. If, after default by the Mortgagor under the terms, covenants,
conditions or agreements contained herein, the Mortgagee procures a foreclosure
search from the title company, a member of the New York Board of Title
Underwriters, and before the foreclosure is commenced the Mortgagor cured the
default, it is hereby agreed that the cost of said search, reasonable legal
fees, and any other related costs, will be added to the principal sum then due
and owing on the agreement.
48. Notwithstanding any other provision herein, all payments made
hereunder shall be applied first to the payment of interest on the principal
balance outstanding hereunder, secondly to sums
6
<PAGE>
payable hereunder or under the Note other than interest and principal, and
thirdly to principal.
49. Mortgagor represents that the premises have not been designated as
a Superfund Site under the applicable laws.
50. Mortgagor agrees that the monthly payments of principal, interest,
taxes and any other amounts due hereunder shall be automatically charged to its
account to De maintained with Long Island Commercial Bank and authorization for
such charges is hereby granted.
DAVID L. KASSEL AND HARRY GOODMAN
d/b/a K&G REALTY ASSOCIATES
By: /s/ David Kassel
-----------------------------------
David L. Kassel by Harry Goodman
his attorney-in-fact
By: /s/ Harry Goodman
-----------------------------------
Harry Goodman
7
<PAGE>
SCHEDULE A
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Town of Babylon, County of Suffolk and State of New York, being more
particularly bounded and described as follows:
BEGINNING at a point on the westerly side of Broad Hollow Road (NYS Rt. 110) as
widened, distant northerly and westerly the following two courses and distances
from the corner formed by the intersection of the north side of Main Street
(Broadway) and the westerly side of Broad Hollow Road (NYS Rt. 110);
1) northerly 1919 feet more or less to a point;
2) North 72 degrees, 22', 47" West 29.60 feet to the true point or place of
beginning;
RUNNING THENCE from said point of beginning and along the land now or formerly
of Karpen Steel Products, Inc. and lands now or formerly of E&L Products, Inc.,
North 72 degrees, 22', 47" West 299.48 feet to a point and lands now or formerly
of Chris and Vincent Fahey;
RUNNING THENCE along said land now or formerly of Chris and Vincent Fahey, North
20 degrees, 17', 53" East a distance of 138.60 feet to a point;
RUNNING THENCE South 72 degrees, 22', 47" East 309.12 feet to a point and the
westerly side of Broad Hollow Road (NYS Rt. 110);
RUNNING THENCE along the westerly side of Broad Hollow Road (NYS Rt. 110) the
following two courses and distances:
1) along an arc of a curve having a radius of 2200.84 feet and a length of 8.83
feet;
2) along an arc of a curve bearing to the left having a radius of 9059.53 feet
and a length of 130.58 feet to the point or place of BEGINNING.
[End Page]
<PAGE>
MORTGAGE NOTE
(Five Year Adjustable)
$610,000.00 Date: November 28, 1995
FOR VALUE RECEIVED DAVID L. KASSEL AND HARRY GOODMAN d/b/a K & G REALTY
ASSOCIATES promise(s) to pay to LONG ISLAND COMMERCIAL BANK, a New York
banking corporation having its principal office at One Suffolk Square,
Islandia, New York (the "Bank"), or order, at One Suffolk Square,
Islandia, New York 11722, or at such other place as may be designated in
writing by the holder of this note, the principal sum of SIX HUNDRED TEN
THOUSAND AND 00/100 ($610,000.00) Dollars, together with interest, in
installments as follows,
$6,369.77 on December 28, 1995 and a like sum of $6,369.77
monthly thereafter on the 28th day of each and every month, subject to
adjustment as hereinafter set forth, until November 28, 2010, when the
balance of said principal together with interest thereon, any other
monies owing shall become due and payable. Each of said payments shall be
applied FIRST to the payment of interest accrued on the unpaid balance of
the principal sum for the monthly period preceding the due date of said
installment (or, at the election of the holder hereof, to the date of
payment of such installation if the same is not paid on its due date) and
SECONDLY, toward the reduction and payment of the principal sum hereof.
The rate at which interest shall be computed shall be 9.5% per annum from
the date hereof, subject to adjustment as hereinafter set forth.
On November 28, 2000 (such date hereinafter referred to as the
"First Change Date") and every five years thereafter the annual rate of
interest shall be adjusted to a rate which is 1.5% above the Long Island
Commercial Bank "Peg Rate", which interest rate, as adjusted, shall be
fixed for a five (5) year term except in the event of default. The Long
Island Commercial Bank Peg Rate is that rate of interest set from time to
time and designated as such by the Bank's Corporate Banking Services
Division. On each such Change Date, the monthly payment shall be adjusted
to an amount which would be sufficient to repay the principal balance
then owing, in substantially equal monthly payments of principal and
interest over the remaining term of the loan.
Interest shall be calculated on the basis of a three hundred
sixty five (365) day year for the actual number of days elapsed. In the
event of default, interest shall be paid at the highest legal rate until
actual receipt by Long Island Commercial Bank of the entire indebtedness.
In no event shall the interest rate exceed the maximum rate allowable
under Federal and State law.
Maker shall have the privilege of prepaying the principal sum
herein, in whole or in part, together with interest thereon on any
monthly installment date. Partial payments shall be in inverse
[end of page]
<PAGE>
order of maturity. There shall be an additional charge of three percent
(3%) of any amount prepaid during the first year of the mortgage term,
two percent (2%) of any amount prepaid during the second year of the
mortgage term and one percent (1%) of any amount prepaid during the
third, fourth and fifth years of the mortgage term. Commencing on the
First Change Date, and each and every Change Date thereafter, there shall
be an additional charge of three percent (3%) of any amount prepaid
during the first year following said Change Date, two percent (2%) of any
amount prepaid during the second year following said Change Date and one
percent (1%) of any amount prepaid during the third, fourth and fifth
years following said Change Date.
IT IS EXPRESSLY AGREED that the principal sum secured by this
note shall become due at the option of the holder thereof on the
happening of any default or event by which, under the terms of the
mortgage securing this note, said principal sum may or shall become due
and payable; also, that all of the covenants, conditions and agreements
contained in said mortgage are hereby made part of this instrument. In
the event that this note, or the mortgage securing it, is referred to
attorneys for collection or foreclosure, and regardless of whether or not
an action or proceeding is instituted, the maker shall pay all sums and
expenses, including reasonable attorney's fees, incurred by the holder
together with all statutory costs, disbursements and allowances.
Presentment for payment, notice of dishonor, protest and notice
of protest are hereby waived. If this mortgage note is executed by two or
more makers, their liability shall be joint and several. This note is
secured by a mortgage made by the maker to the payee of even date
herewith, on property known as and by street number 320 Broad Hollow
Road, Farmingdale, New York, as more particularly described in said
mortgage.
This note may not be changed or terminated orally.
DAVID L. KASSEL AND HARRY GOODMAN
d/b/a K & G REALTY ASSOCIATES
By: /s/ H Goodman
----------------------------------
David L. Kassel, by Harry Goodman
his attorney-in-fact
By: /s/ H Goodman
----------------------------------
Harry Goodman
2
<PAGE>
[Long Island Commercial Bank]
Guaranty of All Liabilities and Security Agreement
New York, November 28, 1995
In consideration of advances, loans, extensions of credit,
renewals, acquisitions of notes and other instruments for payment of money and
any security documents relative thereto or security agreements or conditional
contracts of sale, chattel mortgages, leases and other lien or security
instruments, or any interest or participation therein, due or to become due,
heretofore, made to or for account of
David L. Kassel and Harry Goodman, d/b/a
K & G Realty Associates
or any one or more of them jointly and/or severally (each, any and all of whom
are hereinafter, for the purposes of this agreement, called "Borrower"), and/or
now or hereafter to be made, directly or indirectly, to or for the account of or
from Borrower by L.I. COMM. BANK (hereafter called "Bank") and/or the granting
to or for the account of Borrower such extensions, forebearances, releases of
collateral or other relinquishments of legal rights, and/or extensions of any
other financial accommodations or benefits to Borrower, as Bank may deem
advisable, the undersigned (each, any and all of whom are hereinafter called
"Guarantor") hereby absolutely and unconditionally guarantees to Bank the prompt
payment of claims of every nature and description of Bank against Borrower
(including those arising out of or in any way connected with warranties made by
Borrower to Bank in connection with any instrument deposited with or purchased
by Bank) and any and every obligation and liability of Borrower to Bank alone or
with another or others of whatsoever nature and howsoever evidenced, whether now
existing or hereafter incurred, originally contracted with Bank alone or with
another or others and now or hereafter owing to or acquired in any manner, in
whole or in part, by Bank, or in which bank may acquire a participation, whether
contracted by Borrower alone or jointly and/or severally with another or others,
whether direct or indirect, absolute or contingent, secured or not secured,
matured or not matured. (All of the foregoing are hereinafter individually and
collectively called "Obligations").
Guarantor does hereby give to Bank a continuing lien for the
amount of the obligations and liabilities of Guarantor hereunder, as well as for
the payment of any and all other liabilities and obligations of Guarantor to
Bank or another or others and claims of every nature and description of Bank
against Guarantor, whether now existing or hereafter incurred, originally
contracted with Bank and/or with another or others and now or hereafter owing to
or acquired in any manner in whole or in part by Bank or in which Bank may
acquire a participation, whether contracted by Guarantor alone or jointly and/or
severally with another or others, direct or indirect, absolute or contingent,
secured or not secured, matured or not matured (all of which are hereafter
collectively called "Liabilities"), upon any and all moneys, securities and any
and all other property of Guarantor and the proceeds thereof, now or hereafter
actually or constructively held or received by or in transit in any manner to or
from Bank, its correspondents or agents from or for Guarantor, whether for
safekeeping, custody, pledge, transmission, collection or otherwise or coming
into the possession of Bank in any way, or placed in any safe deposit box leased
by Bank to Guarantor, Bank is also given a continuing lien and/or right of
set-off for the amount of said Liabilities upon any and all deposits (general or
special) and credits of Guarantor with, and any and all claims of Guarantor
against, Bank at any time existing and Bank is hereby authorized at any time or
times, without prior notice, to apply such deposits or credits, or any part
thereof, to such Liabilities and in such amounts as bank may elect, although
said Liabilities may be contingent or matured, and whether the collateral
security therefor is deemed adequate or not. (All of the foregoing, together
with any property, now or hereafter, pledged, assigned, and transferred to or
deposited with bank or its agents by or for Guarantor or in which Bank shall
otherwise be granted a security interest by or for the Guarantor to secure said
Liabilities are hereinafter individually and collectively called "Collateral
Security").
If Guarantor, as registered holder of Collateral Security,
shall become entitled to receive or does receive any stock certificate, option
or right, whether as an addition to, in substitution of, or in exchange for,
such Collateral Security, or otherwise, Guarantor agrees to accept same as
Bank's agent and to hold same in trust for Bank, and to forthwith deliver the
same to Bank in the exact form received, with Guarantor's indorsement when
necessary, to be held by Bank as Collateral Security.
Guarantor consents that Obligations or the liability of any
other guarantor, surely, indemnitor, endorser, or any other party for or upon
said Obligations or said Collateral Security may, from time to time, in whole or
in part, be renewed, extended, modified, accelerated, compromised, settled or
released by Bank, and that any Collateral Security or lines for said Obligations
may, from time to time, in whole or in part, be exchanged, sold, released,
surrendered or otherwise dealt with by Bank, and that Bank may refuse payment,
in whole or in part, from a NY party to Obligations, all without any notice to,
or further assent by, or any reservation of rights against, Guarantor and
without in any way affecting or releasing the liability of Guarantor hereunder.
Bank shall not be liable for failure to collect or realize
upon Obligations or upon Collateral Security, or any part thereof, or for any
delay in so doing, nor shall bank be under any obligation to take any action
whatsoever with regard thereto. Bank shall use reasonable care in the custody
and preservation of Collateral Security in its possession but need not take any
steps to preserve rights against prior parties or to keep Collateral and
Security indentifiable. Bank shall have no obligation to comply with any
recording, rerecording, filing, refiling or other legal requirement necessary to
establish or maintain the validity, priority or enforceability of, or Bank's
rights in and to, Collateral Security, or any part thereof. Bank or its nominee
may exercise any right of Guarantor with respect to any Collateral Security. In
any statutory or non-statutory proceeding, affecting Guarantor or Collateral
Security, Bank or its nominee may, whether or not a default exists and
regardless of the amount of Obligations or Liabilities, file a proof of claim
for the full amount of such obligations or liabilities and vote such claim for
the full amount thereof: (a) for or against any proposal or resolution; (b) for
a Trustee or Trustees or for a Committee of Creditors; (c) for the acceptance or
rejection of any proposed arrangement, plan of reorganization, wage earners'
plan, composition or extension, and Bank or its nominee may receive any payment
or distribution and give acquittance therefor any may exchange or release
Collateral Security. Any and all stocks, bonds or other securities held by Bank
hereunder may, without notice, and whether or not a default exists, be
registered in the name of Bank or its nominee without disclosing that Bank is a
pledgee; Bank (whether or not a default exists and regardless of the amount of
Obligations or Liabilities) or such nominee may, without notice, exercise all
voting and corporate rights at any meeting of any corporation issuing such
stocks, bonds or other securities, and exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to such stocks, bonds or other securities as if the absolute owner
thereof, including without limitation, the right to exchange, at its discretion,
any and all of such stocks, bonds or other securities for other stocks, bonds,
securities or any other property upon the merger, consolidation, reorganization
or other readjustment of any stocks, bonds, securities or any other property
upon the merger, consolidation, reorganization, recapitalization or other
readjustment of any corporation issuing the same or upon the exercise by the
issuing corporation or Bank of any right, privilege or option pertaining to such
stocks, bonds or other securities and, in connection therewith, to deposit and
deliver any and all of such stocks, bonds or other securities with any
committee, trustee, depositary, transfer agent, registrar or other designate
agency upon such terms and conditions as it may determine, all without liability
except to account for property actually received by it. Bank shall have no duty
to exercise any of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing. Guarantor hereby
authorizes Bank to sign and file financing statements, trust receipts, security
agreements or other agreement with respect to any Collateral Security at any
time without the signature of Guarantor. Guarantor will, however, at any time on
request of Bank, sign a any of such instruments, Guarantor agrees to pay all
filing fees and to reimburse Bank for all costs and expenses of any kind
incurred in any way in connection with Collateral Security.
Bank may sell all or any part of Collateral Security deposited or
pledged for said Liabilities, although said Liabilities may be contingent or
unmatured, whenever in its discretion Bank considers such sale necessary for its
protection. Any such sale may be made in the manner hereinafter provided,
without prior demand for margin or additional margin or for payment on account
or any other demands whatsoever; the making of any such demands, oral or
written, in any one or more instances shall not establish a course of conduct
nor constitute a waiver of the right of bank to sell said Collateral Security as
herein provided or of the right of Bank to accelerate the maturity of
Liabilities as herein provided.
If Guarantor shall fail to perform any agreement herein
contained or contained in any security agreement or other agreement delivered by
Guarantor to Bank, or if default occurs in the punctual payment of any of said
Obligations, Liabilities or Collateral Security, or if any of the following
events occurs with respect to Guarantor or Borrower or any obligor, maker,
endorser, acceptor, surely or guarantor of, or any other party to, said
Obligations, Liabilities or Collateral Security (each and all of whom are
included in the term "them" as hereinafter used in this paragraph): default in
respect of any liabilities, obligations or agreements (present or future,
absolute or contingent, secured or unsecured, matured or unmatured, joint or
several, original or acquired) of any of them to or with Bank; death (being an
individual) or dissolution (being a partnership or corporation); death or
suspension of the usual business activities of any member of any partnership
included in the term "them"; insolvency, or if insolvency be imminent or
threatened; commission of an act of bankruptcy; assignment for the benefit of
creditors; calling of a meeting of any creditors; appointment of a committee of
any creditors or a liquidating agent; offering to or receiving from any
creditors a composition or extension of any of the indebtedness of any of them;
making, or sending a notice of an intended, bulk transfer, granting a security
interest in any property, including without limitation, in the rights of any of
them in Collateral Security; suspensions of payment of the indebtedness of any
of them; the whole or partial suspension or liquidation of their usual business;
failure, after demand, to furnish any financial information to Bank or to permit
inspection of books or records of account by Bank; making any misrepresentation
to Bank for the purpose of obtaining credit or an extension of credit; failure
to pay any tax or failure to withhold, collect or remit any tax or tax
deficiency when assessed or due; failure to pay when due any obligations either
in writing or not; commencement of any proceeding, suit or action (at law, or in
equity, or under any of the provisions of The Bankruptcy Act or amendments
thereto) for adjudication as a bankrupt, reorganization, composition, extension,
arrangement, wage earners' plan, receivership, liquidation or dissolution by or
against any of them; application for the appointment, or the appointment in any
jurisdiction, at law, or in equity, of or any receiver or similar officer or
committee of, or any of the property of, any of them; making of any tax
assessment by the United States or any state; entry of a judgment or issuance of
a warrant of attachment or an injunction against, or against any of the property
of, any of them; commencement against any of them of any proceeding for
enforcement of a money judgment under Article 52 of the New York Civil Practice
Law and Rules or amendments thereto; failure of any of them or of Obligations,
Liabilities or Collateral Security at any time to comply with Regulation U of
the Federal Reserve Board or any amendments thereto; or if at any time, in the
opinion of Bank, the financial responsibility of any of them shall become
impaired, then, in any of those events, said Liabilities, although not yet due,
shall, without notice of demand, forthwith become and be immediately due and
payable, notwithstanding any time or credit allowed under any of said
Liabilities or under any instrument evidencing the same.
Upon the happening of any of the events herein above set
forth, and at any time thereafter, Bank shall have, in addition to all other
rights and remedies, the remedies of a secured party under the New York Uniform
Commercial Code. Guarantor shall, upon request of Bank, assemble Collateral
Security and make it available to Bank at a place to be designated by Bank which
is reasonably convenient to Bank and Guarantor, Bank will give Guarantor notice
of the time and place of any public sale of any Collateral Security or of the
time after which any private sale or any other intended disposition thereof is
to be made by sending notice, as provided below, at least five days before the
time of such sale or disposition, which provisions for notice Guarantor and Bank
agree are reasonable. No such notice need be given by Bank with respect to
Collateral Security.
[end of page 1]
<PAGE>
Bank may apply the net proceeds of any sale, lease or other
disposition of Collateral Security, after deducting all costs and expenses of
every kind incurred therein or incidental to the retaking, holding, preparing
for sale, selling, leasing or the like of said Collateral Security or in any way
relating to the rights of Bank thereunder, including attorney's fees of 20% of
the gross proceeds if an attorney is used to realize on Collateral Security and
legal expenses, to the payment, in whole or in part, in such order as Bank may
elect, of one or more of said Liabilities, whether due or not due, absolute or
contingent, making proper rebate for interest or discount on items not then due,
and only after so applying such net proceeds and after the payment by Bank of
any other amounts required by any existing or future provision of law (including
Section 9-504(i) (c) of the Uniform Commercial Code of any jurisdiction in which
any of the Collateral Security may at the time be located) need Bank account for
the surplus, if any, Guarantor shall remain liable to Bank for the payment of
any deficiency with interest at the highest legal rate.
Guarantor waives any and all notice of acceptance of this
guaranty or the creation, or accrual of any of said Obligations, or of any
renewals or extensions thereof from time to time, or of the reliance by Bank
upon this guaranty, Obligations, and each of them, shall conclusively be
presumed to have been created, contracted or incurred in reliance upon this
guaranty and all dealings between Borrower and Bank shall likewise conclusively
be presumed to have been created, contracted or incurred in reliance upon this
guaranty and all dealings between Borrower and Bank shall likewise conclusively
be presumed to have been created, contracted or incurred in reliance upon this
guaranty and all dealings between Borrower and Bank shall likewise conclusively
be presumed to have been had or consummated in reliance upon this guaranty.
Guarantor waives protest, demand for payment, notice of default or nonpayment to
or on Guarantor, Borrower or any other party liable for or upon any of said
Obligations, Liabilities or Collateral Security. This guaranty shall be a
continuing, absolute and unconditional guaranty of payment regardless of the
validity, regularity or enforceability of any of said Obligations or purported
Obligations or the fact that a security interest, as a lien on any Collateral
Security may not be granted to, conveyed to, or created in favor of Bank or that
Collateral Security may be subject to equities or defenses or claims in favor of
others or may be invalid or defective in any way and for any reason including
any action, or failure to act, by Bank. This guaranty shall continue in full
force and effect notwithstanding the termination or revocation of any other
guaranty of Obligations, by any other co-guarantor thereof with respect to his
liability as guarantor, any notice from Guarantor not to renew, extend or modify
Obligations or any part thereof, the death, incapacity, dissolution of
Guarantor, or increase, decrease or change in the partners of the Guarantor, if
it be a partnership, and shall be binding upon Guarantor and Guarantor's estate
and the personal representatives, heirs and successors of Guarantor who shall
nevertheless, remain liable with respect to Obligations and any renewals or
extensions thereof or liabilities arising out of same, and Bank shall have all
the rights herein provided for as if no such event had occurred. Any payment on
account of, or reacknowledgment of Obligations by Borrower or any other party
liable therefor shall be deemed to be made on behalf of Guarantor and shall
serve to start anew the statutory period of limitations applicable to
Obligations and Liabilities.
The execution and delivery hereafter to Bank by Guarantor of a
new instrument of guaranty shall not terminate, supersede or cancel this
instrument, unless expressly provided therein, and all rights and remedies of
Bank hereunder or under any instrument of guaranty hereafter executed and
delivered to Bank by Guarantor shall be cumulative and may be exercised singly
or concurrently.
No executory agreement unless in writing and signed by Bank
and no course of dealing between Guarantor and Bank shall be effective to change
or modify or to discharge in whole or in part this guaranty. No waiver of any
rights or powers of Bank or consent by it shall be valid unless in writing
signed by an authorized officer.
Any notice to Bank shall be deemed effective only if sent to
and received at the branch, division or department of Bank conducting the
transaction or transactions hereunder. Any notice to Guarantor shall be deemed
sufficient if sent to Guarantor whose name appears first below to the last known
address of such Guarantor appearing on the books of Bank. Each Guarantor hereby
designates the one whose name appears first below as agent to receive notice
hereunder on his or its behalf.
The term "Bank" as used throughout this guaranty shall be
deemed to include all its branches, divisions and departments, any individual,
partnership or corporation acting as nominee or agent for Bank, any corporation,
the stock of which is owned or controlled, directly or indirectly, by Bank, and
any endorsees, successors or assignees of Bank. The term "Borrower" and
"Guarantor" as used throughout this instrument shall include the individual or
individuals, association, partnership, or corporation named herein respectively
as Borrower or Guarantor and (a) in the case of Borrower any successor
individual or individuals, associations, partnership or corporation to which all
or substantially all of the business or assets of said Borrower respectively
shall have been transferred, (b) in the case of a partnership Borrower or
partnership Guarantor any general or limited partnership which shall have been
created by reason of, or continued in existence after, the admission of any new
partner or partners therein, or the dissolution of the existing partnership by,
or the continuation thereof after the death, resignation, or other withdrawal of
any partner, and (c) in the case of a corporate Borrower or Guarantor, any other
corporation into or with which said Borrower or Guarantor shall have or has been
merged, consolidated, reorganized, or absorbed.
Guarantor agrees that, whenever an attorney is used to obtain
payment under or otherwise enforce this guaranty or to enforce, declare or
adjudicate any rights or obligations under this guaranty or with respect to
Collateral Security, whether by suit or by any other means whatsoever, an
attorney's fee of 20% of the principal and interest then due hereunder shall be
payable by each Guarantor against whom this guaranty or any obligation or right
hereunder is sought to be enforced, declared or adjudicated. Guarantor, if more
than one, shall be jointly and severally bound and liable hereunder if any of
the undersigned is a partnership, also the members thereof individually. Bank
and Guarantor, in any litigation (whether or not arising out of or relating to
Obligations, Liabilities or Collateral Security or any of the matters contained
in this guaranty) in which Bank and any of them shall be adverse parties, waive
trial by jury and Guarantor, in addition, waives the right to interpose any
defense based upon any Statute of Limitations or any claim of laches and any
set-off or counterclaim of any nature or description, provided that the
foregoing shall not prevent Guarantor from asserting in a separate and
independent proceeding, any claim it may have against Bank and waives the
performance of each and every condition precedent to which Guarantor might
otherwise be entitled by law. Bank shall have the right to fill in any blank
spaces left in this guaranty (including the name of "Borrower"), to date this
guaranty and to correct patent errors herein. This guaranty shall be governed by
and construed in accordance with the laws of the State of New York. Any
provision hereof which may prove unenforceable under any law shall not affect
the validity of any other provision hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set
his hand and his or its seal the day and year first above written, intending and
declaring this to be a duly sealed instrument.
Witness: Electronic Hardware Corp. (L.S.)
----------------------------------------
Address
----------------------------------------
By: /s/ Harry Goodman (L.S.)
----------------------------------------
Harry Goodman, Address
----------------------------------------
(L.S.)
----------------------------------------
Address
----------------------------------------
Individual(s) Acknowledgment
STATE OF NEW YORK
s.s.:
COUNTY OF NEW YORK
On this ______________, day of __________________, 19___,
before me personally appeared _________________________________________ to me
known, and known to me to be the individual(s) described in and who executed the
foregoing instrument and (t)(s)he(y) duly acknowledged to me that (t)(s)he(y)
executed the same.
-----------------------------------------
Notary Public
Partnership Acknowledgment
STATE OF NEW YORK
s.s.:
COUNTY OF NEW YORK
<PAGE>
On this ______________, day of __________________, 19___,
personally appeared _____________________________________________________ to me
known and known to me to be the members of the partnership of _________________
_____________________________ mentioned and described in and which executed the
foregoing instrument, and the said members duly acknowledged to me that they
executed said instruments for and on behalf of and with the authority of the
said firm of _________________________________ for the uses and purposes therein
mentioned.
-----------------------------------------
Notary Public
Corporate Acknowledgment
STATE OF NEW YORK
s.s.:
COUNTY OF SUFFOLK
On this 28th, day of November, 1995, before me personally came
Harry Goodman to me known who, being duly sworn, did depose and say that he
resides at 320 Broad Hollow Road, Farmingdale; that he is the _________________
____________________ of the Electronic Hardware Corp., the corporation described
in and which executed the above instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation,
and that he signed his name thereto by like order.
[end of page 2]
<PAGE>
ASSIGNMENT OF LEASES AND RENTS
THIS ASSIGNMENT, made the 28th day of November 1995, by David L.
Kassel and Harry Goodman d/b/a K&G Realty Associates, Owner, to LONG
ISLAND COMMERCIAL BANK, a New York banking corporation, having an office
at One Suffolk Square, Islandia, New York, Mortgagee
WITNESSETH, that whereas the Owner has title to the premises,
and the Mortgagee now holds a mortgage thereon and in order to better
secure the payment of the said mortgage and the performance of all of the
terms, covenants and conditions of the said mortgage and of the note or
other obligation which it secures;
NOW THEREFORE, THIS ASSIGNMENT WITNESSETH, as follows:
1. That the owner does hereby transfer and assign unto the said
Mortgagee and its assigns forever, all of the rents, revenue, issues and
profits now due and hereafter to become due from the mortgaged premises
above described, and also all leases, sub-leases and rental agreements
now or hereafter affecting the said premises together with any and all
renewals, extensions, replacements or amendments thereto.
2. The Mortgagee is hereby given and granted full power and
authority, as principal:
a) enter upon and take possession of said premises; to demand,
collect and receive from the tenant or tenants now or hereafter in
possession of the said premises, or any part thereof, or from other
persons liable therefor, all of the rents and revenues from such tenant
or tenants or other persons, which may now be due and unpaid and which
may hereafter become due; to institute and carry on all legal proceedings
necessary for the protection of the above described premises, including
such proceedings as may be necessary to recover the possession of the
whole or of any part of said premises; to institute and prosecute any and
all suits for the collection of rents and all other revenues from said
premises which may now be due and unpaid and which may hereafter become
due; to institute and prosecute summary proceedings for the removal of
any tenant or tenants or other persons from said premises; and to pay the
cost and expenses of all such suits and proceedings out of the rents and
other revenues received;
b) To maintain said premises and keep the same in repair; to
pay, out of the rents and other revenues received, the costs thereof and
of services of all employees, including their equipment, and of all of
the expenses of maintaining and keeping said premises in repair and in
proper condition, also all interest on the principal sum of the note and
mortgage above mentioned, now due and unpaid or hereafter to become due,
and all of the principal sum of said note and mortgage now due and unpaid
or hereafter to become due, and also all taxes, assessments and water
rates now due and unpaid or which may hereafter become due and a charge
or lien upon said premises, and to pay interest and principal now due and
unpaid or hereafter becoming due on other mortgages affecting the same
premises;
c) To execute and comply with all the laws of the State of New
York, and also all laws, rules, orders, ordinances and requirements of
any and all Governmental Agencies affecting said premises and to pay the
costs thereof out of the rents and other revenues received;
d) To rent or lease the whole or any part of said premises for
such term or terms and on such conditions as to the said Mortgagee may
seem proper;
e) To employ an agent or agents to rent and manage said
property and to collect the said rents and other revenues thereof, and to
pay the reasonable value of its or their services out of the rents and
revenues received;
f) To act exclusively and solely in the place and stead of the
Owner, and to have all of the powers as Owner, as possessed by the said
Owner, for the purposes aforesaid.
(3) The Owner hereby authorizes and empowers the Mortgagee to
effect general liability insurance, boiler insurance, plate glass
insurance, rent insurance, workers' compensation law insurance, fire
insurance and generally such other insurance as is customarily effected
by an owner of real property of a style and kind of the premises above
described, or as the Mortgagee may deem advisable or necessary to effect,
and to pay the premiums and charges therefor out of the said rents and
other revenues received.
(4) The Mortgagee, in its sold discretion, shall, from time to
time, determine to which one or more of the purposes aforesaid the said
rents and revenues shall be applied and the amount to be applied thereto.
(5) Nothing contained in this instrument shall prejudice or be
construed to prejudice the right of the Mortgagee to commence and
prosecute, or to prevent the Mortgagee from commencing and prosecuting
any action which it may deem advisable, or which it may be entitled to
commence and prosecute for the foreclosure of the above mentioned note
and mortgage, or to prejudice any other rights of the Mortgagee; nor
shall this instrument be construed to waive any defaults now existing or
which may occur under said note and mortgage; nor shall this instrument
be construed as granting a forbearance or extension of time of payment.
(Page 1 of 3)
<PAGE>
(6) This assignment of leases and rents shall be held by the
Mortgagee as additional and further security for the payment of the
principal amount of the aforesaid mortgage and for the performance of all
the terms, covenants and conditions of said note and mortgage, it being
understood however, that the Mortgagee shall not apply or enforce this
assignment so long as the Mortgagor or other Owner of the property shall
fully and promptly pay the items required to be paid by said note and
mortgage and provided further that the mortgagor or other Owner of the
property shall fully and faithfully perform all the terms, covenants and
conditions of the said note and mortgage and the Leases assigned
hereunder; and it being further understood that immediately upon default
by the Mortgagor or other Owner of the property in the performance of any
of the terms, covenants and conditions of said note and mortgage or
immediately upon the failure of the mortgagor or other Owner of the
property to make any of the payments required to be made by said note and
mortgage, or failure to perform its obligation under leases assigned
hereunder and upon the occurrence of any default whatsoever, the
Mortgagee may immediately apply and enforce this assignment and exercise
the rights and remedies thereunder, without previous or prior notice to
the mortgagor or other Owner of the property; and thereupon this
assignment shall be and continue in full force and effect. Any failure or
omission to enforce this assignment for any period of time shall not
impair the force and effect thereof or prejudice the rights of the
Mortgagee, nor shall the Mortgagee be required under this agreement to
exercise or enforce any of the rights herein granted to it, all the
matters herein contained being strictly discretionary with the said
Mortgagee.
(7) In pursuance of the provisions of Real Property Law Section
291-f, the owner for itself, its successors and assigns, covenants and
agrees that it
a) will not orally or in writing cancel, modify, surrender or
renew any of such leases or diminish the obligations of the lessees
thereunder or release any one or more tenants from their respective
obligations under such leases without previous written consent of the
Mortgagee;
b) will not institute any proceedings for the dispossess or
eviction of the tenant or tenants under any such leases without notifying
the Mortgagee thereof;
c) will not assign or pledge said rents or collect from any of
the tenants or lessees any rent or rentals for a period of more than one
month in advance of the due date thereof without written consent of the
Mortgagee;
d) will observe and perform all of the obligations imposed
upon the landlord in any such leases and will not do or permit to be done
anything to impair the security thereof;
e) will give to the Mortgagee written notice of any sublease
or assignment of any such leases given by the tenant.
Any violation of these covenants shall constitute a default under the
mortgage, and in such event, the whole amount of the principal then
remaining unpaid shall immediately become due and payable. These
covenants shall continue in full force and effect until the mortgage debt
is paid in full.
(8) The Mortgagee shall not be obligated to perform or
discharge, nor does it hereby undertake to perform or discharge any
obligation, duty or liability under said leases, or under or by reason of
Mortgagee exercising its rights under this agreement, and Owner shall and
does hereby agree to indemnify and to hold the Mortgagee harmless of and
from any and all liability, loss or damage which it may or might incur
under said leases or under or by reason of any alleged obligations or
undertaking on its part to perform or discharge any of the terms,
covenants or agreements contained in said leases or by virtue of its
operation, maintenance, control or use of the premises; should the
Mortgagee incur any such liability, loss or damage under said leases,
under or by reason of this assignment, or the operation, maintenance, use
or control of premises, or in the defense of any such claims or demands,
the amount thereof, including costs, expenses and reasonable attorney's
fees, shall be secured hereby, and Owner shall reimburse the Mortgagee
therefor immediately upon demand, and upon the failure of Owner to do so
the Mortgagee may declare all sums secured hereby immediately due and
payable and/or reimburse itself out of rents collected rom tenants.
(9) Mortgagee shall not be liable for any act omitted or taken
by it under this Assignment, except for gross negligence or bad faith.
(10) No security deposits under said lease have been assigned or
intended to be assigned.
IN WITNESS WHEREOF, the above instrument has been duly
executed by the Owner and, if a corporation, its seal thereunto duly
affixed.
DAVID L. KASSEL AND HARRY GOODMAN
d/b/a K&G REALTY ASSOCIATES (L.S.)
-----------------------------------------------
By: /s/ David Kassel (L.S.)
-----------------------------------------------
David L. Kassel by Harry Goodman
his attorney-in-fact
By: /s/ Harry Goodman
-----------------------------------------------
Harry Goodman
(Page 2 of 3)
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF Suffolk )
On the 28th day of November, 1995, before me came Harry Goodman
to me known to be the individual described in, and who executed the
foregoing instrument, and he acknowledged that he executed the same.
STATE OF NEW YORK )
ss.:
COUNTY OF Suffolk )
On November 28, 1995 before me came Harry Goodman to me known
and known to me to be the attorney in fact of David L. Kassel the
individual described in, and who by his attorney in fact executed the
foregoing instrument, and duly acknowledged before me that he executed
the same as the act and deed of David L. Kassel therein described, and
for the purposes therein mentioned mentioned by virtue of a power of
attorney duly executed by David L. Kassel, dated the ____ day of
_______________, 1995 and intended to be recorded immediately prior
hereto.
STATE OF NEW YORK )
ss.:
COUNTY OF )
On the day of , 19 , before me personally came
to me known to be the person(s) who executed the foregoing instrument, and who,
being duly sworn by me, did depose and say that he is(are) a member(s) of the
firm of , a co-partnership, and that he executed
the foregoing instrument in the firm name of , and that he had authority to sign
the same, and he acknowledged to me that he executed the same as the act and
deed of said firm for the uses and purposes therein mentioned.
TO THE TENANTS ON THE PREMISES DESCRIBED HEREIN:
An assignment of leases and rents covering premises occupied by
you has been delivered to LONG ISLAND COMMERCIAL BANK, and you are hereby
directed pursuant thereto to pay all rents, past due, due and to become
due, to the March 12, 1998 said Bank.
(Page 3 of 3)
<PAGE>
SCHEDULE A
ALL that certain plot, piece or parcel of land, situate, lying and being
in the Town of Babylon, County of Suffolk and State of New York, being
more particularly bounded and described as follows:
BEGINNING at a point on the westerly side of Broad Hollow Road (NYS Rt.
110) as widened, distant northerly and westerly the following two courses
and distances from the corner formed by the intersection of the north
side of Main Street (Broadway) and the westerly side of Broad Hollow Road
(NYS Rt. 110);
1) northerly 1919 feet more or less to a point;
2) North 72 degrees, 22', 47" West 29.60 feet to the true point or place
of beginning;
RUNNING THENCE from said point of beginning and along the land now or
formerly of Karpen Steel Products, Inc. and lands now or formerly of E&L
Products, Inc., North 72 degrees, 22', 47" West 299.48 feet to a point
and lands now or formerly of Chris and Vincent Fahey;
RUNNING THENCE along said land now or formerly of Chris and Vincent
Fahey, North 20 degrees, 17', 53" East a distance of 138.60 feet to a
point;
RUNNING THENCE South 72 degrees, 22', 47" East 309.12 feet to a point and
the westerly side of Broad Hollow Road (NYS Rt. 110);
RUNNING THENCE along the westerly side of Broad Hollow Road (NYS Rt. 110)
the following two courses and distances:
1) along an arc of a curve having a radius of 2200.84 feet and a length of
8.83 feet;
2) along an arc of a curve bearing to the left having a radius of 9059.53
feet and a length of 130.58 feet to the point or place of BEGINNING.
1
</TABLE>
<PAGE>
SUBLEASE AGREEMENT
------------------
AGREEMENT made as of this 1st day of March, 1998 between
Electronic Hardware Corp., a New York corporation having its principal
place of business at 320 Broadhollow Road, Farmingdale, New York 11735
(hereinafter the "Sublessor"), and Memory Protection Devices, Inc., a New
York corporation having an office at 320 Broadhollow Road, Farmingdale,
New York 11735 (hereinafter the "Sublessee").
WHEREAS, by a lease dated December 19, 1989, and an Amendment
dated March 16, 1995 (collectively, the "Over-Lease"), K&G Realty
Associates ("Landlord") leased to Sublessor approximately 20,000 square
feet on the premises known as 320 Broadhollow Road, Farmingdale, New York
11735 (the "Premises"); and
WHEREAS, a copy of the Over-Lease has been delivered to
Sublessee and Sublessee, by its execution hereof, acknowledged receipt of
the same; and
WHEREAS, the Sublessor and Sublessee desire to enter an
agreement for the sublease of approximately 400 square feet of the
Premises (the "Subleased Premises"),
NOW THEREFORE, in consideration of the mutual agreements and
covenants contained herein and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, it is
mutually agreed by and among the parties as follows:
1. Term.
The term of this Sublease shall begin as of March 1, 1998, and
shall end on February 28, 2003, or at such time as it may be canceled or
terminated pursuant to the terms set forth herein (the "Term").
2. Premises rented.
The Sublessor hereby subleases to the Sublessee and the
Sublessee hereby hires from the Sublessor, 400 square feet of the
Premises for use as general office space.
3. Rent.
The Sublessee shall pay fixed annual rent in the amount of
$3,000, payable to the Sublessor in equal monthly installments of $250.
All payments shall be paid in advance on the first day of each month
during the Term.
-1-
<PAGE>
4. The Sublease Is Subject to Over-Lease.
The Sublease is subject and subordinate to the Over-Lease and to
all of the terms, covenants and conditions thereof, except as hereinafter
provided. It is also subject to any agreement to which the Over-Lease is
subject. Sublessee acknowledges that it has read and examined the
Over-Lease and is fully familiar with all covenants, agreements, terms,
provisions and conditions to be performed thereunder.
5. Sublessor's Duties.
The Over-Lease describes the Landlord's duties. The Sublessor is
not obligated to perform the Landlord's duties. If the Landlord fails to
perform, you, the Sublessee, must send the Sublessor a notice. Upon
receipt of the notice, the Sublessor shall then promptly notify the
Landlord and demand that the Over-Lease agreements be carried out. The
Sublessor shall make reasonable efforts to continue the demands until the
Landlord performs.
6. Incorporation by Reference of Over-Lease.
Except as otherwise provided by this Sublease Agreement, all of
the terms, provisions, and covenants of the Over-Lease are incorporated
by reference in, and are hereby made part of this Sublease.
Notwithstanding the foregoing, to the extent anything contained herein
establishes different rights and obligations between the Sublessor and
Sublessee than those existing between the Landlord and the Tenant in the
Over-Lease, the provisions of this Sublease Agreement shall govern.
7. Indemnification.
The Sublessee, to the fullest extent permitted by law, shall
indemnify and save the Sublessor and the Landlord harmless against any
and all liabilities, suits, obligations, fines, damages, penalties,
claims, costs, charges and expenses, including, without limitation,
reasonable attorneys' fees and disbursements, which may be imposed upon
or incurred by or asserted against the Sublessor and/or the Landlord
arising out of acts or omissions by the Sublessee or its employees,
agents, licensees or affiliates.
8. No Authority.
The Sublessee shall have no authority to contact or make any
agreement with the Landlord about the Premises or the Over-Lease. The
Sublessee shall pay rent or other charges to the Sublessor only, and
shall not pay rent or other charges to the Landlord, except with the
written consent of the Sublessor.
-2-
<PAGE>
9. Remedies.
In the event of any breach of this Sublease Agreement by the
Sublessee, the Sublessor shall have all the rights against the Sublessee
as would be available to the Landlord against the Sublessor under the
terms of the Over-Lease.
10. Amendments and Modifications.
This Sublease Agreement can be changed only by an agreement in
writing signed by the parties to the Sublease.
11. Counterparts.
This Sublease Agreement may be executed in one or more
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have signed their names
as of the day and year first above written.
Electronic Hardware Corp.
By: /s/Andrew Franzone
------------------------------
Andrew Franzone, President
Memory Protection Devices, Inc.
By: /s/David L. Kassel
-----------------------------
David L. Kassel, Chairman
-3-
<PAGE>
COLLECTIVE BARGAINING AGREEMENT
By and Between
LOCAL 531, INTERNATIONAL BROTHERHOOD OF
TEAMSTERS, AFL-CI0
-and-
ELECTRIC HARDWARE CORPORATION
May 10, 1995 -through- May 9, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<S> <C> <C>
ASSIGNABILITY ....................................... 34 ...................... 17
BULLETIN BOARD ...................................... 30 ...................... 16
CHECK-OFF ........................................... 4 ...................... 2-3
COLLECTIVE BARGAINING ............................... 27 ...................... 15
DEATH-IN-FAMILY ..................................... 31 ...................... 16
DISCHARGE ........................................... 13 ...................... 10-11
DISCOVERY ........................................... 29 ...................... 16
DURATION ............................................ 36 ...................... 17
DRUG TESTING ........................................ 44 ...................... 21
EFFECTIVE DATE ...................................... 35 ...................... 17
EXISTING PRACTICES .................................. 18 ...................... 13
GOOD FAITH .......................................... 1 ...................... 1
GRIEVANCE PROCEDURES ................................ 14 ...................... 11-12
GUARANTEED WORK ..................................... 21 ...................... 14
HOLIDAYS ............................................ 8 ...................... 4-5
HOURS OF WORK ....................................... 5 ...................... 3
JURY DUTY ........................................... 32 ...................... 16
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
LEAVE-OF-ABSENCE .................................... 20 ...................... 14
LIABILITY ........................................... 25 ...................... 15
LIE DETECTOR TEST ................................... 23 ...................... 14
NON-DISCRIMINATION .................................. 16 ...................... 13
NO STRIKE, NO LOCKOUT................................ 12 ...................... 10
NOTICE TO UNION ..................................... 9 ...................... 5-6
OVERTIME ............................................ 6 ...................... 3-4
PART-TIME EMPLOYEES ................................. 43 ...................... 20-21
PRE-HIRING REQUIREMENTS ............................. 38 ...................... 17-18
PROMOTIONS .......................................... 28 ...................... 15
PROTECTION OF RIGHTS ................................ 33 ...................... 16-17
RECOGNITION.......................................... 2 ...................... 1
REHIRE OF EMPLOYEES ................................. 24 ...................... 15
SAFETY & SANITARY CONDITIONS ........................ 17 ...................... 13
SENIORITY ........................................... 15 ...................... 12-13
SEPARABILITY ........................................ 26 ...................... 15
SICK & MATERNITY LEAVE .............................. 42 ...................... 20
SUB-CONTRACTING ..................................... 37 ...................... 17
TRIAL PERIOD ........................................ 22 ...................... 14
UNIFORMS ............................................ 39 ...................... 18
UNION AS THE PARTY AT INTEREST ...................... 10 ...................... 7
UNION RIGHTS ........................................ 7 ...................... 4
UNION SECURITY ...................................... 3 ...................... 1-2
VACATIONS ........................................... 41 ...................... 19
VISITATIONS ......................................... 19 ...................... 14
WAGE & WAGE INCREASES ............................... 40 ...................... 18
WELFARE FUND (MEDICAL COVERAGE) ..................... 11 ...................... 7-9
</TABLE>
[END PAGE]
<PAGE>
THIS AGREEMENT, made and entered into this day of 1995,
by and between ELECTRONIC HARDWARE CORPORATION located at 320 Broad Hollow
Road., Farmingdale, New York 11735, herein designated as the EMPLOYER or
COMPANY, and LOCAL 531 INTERNATIONAL BROTHERHOOD OF TEAMSTERS, A.F.L. - C.I.O.,
located at 372 McLean Avenue, Yonkers, New York 10705, herein designated as the
UNION.
WHEREAS the Union represents the majority of the employees of the
Employer.
NOW, THEREFORE, in consideration of mutual promises herein assumed and
made, the parties hereby agree as follows:
GOOD FAITH:
ART. 1. The Employer and the Union hereby agree that they will in good
faith live up to the provisions of this Agreement, and that this Agreement is
entered into by the Union and the Employer on behalf of the employees of the
Employer, now employed, or hereafter to be employed, in the bargaining unit as
defined in ARTICLE 2.
RECOGNITION:
ART. 2. a) The Employer agrees to and does hereby recognize the Union
as sole and exclusive bargaining agent for all employees, excluding office
employees guards, professional employees and supervisors as defined in the
National Labor Relations Act of 1947 as amended, and agrees that no unit work
shall be performed by employees who are not among the included classification
herein.
b) This Agreement shall cover all future plants which the
Employer may operate during the term of this Agreement or any extension thereof,
including all plants operated as the result of expansion or change within 225
miles of the Employer's current location.
UNION SECURITY:
ART. 3. a) All employees who are members of the Union on the effective
date of this subsection or on the date of execution of this Agreement, whichever
is the later, shall remain members of the Union in good standing as a condition
of employment. All
- 1 -
<PAGE>
present employees who are not members of the Union and all employees who
are hired hereafter shall become and remain members in good standing of
the Union as a condition of employment, by the 31st day following the
effective date of this subsection or by the 31st day following the date of their
employment, whichever is the later. This provision shall be made and become
effective as of such time as it may be made and become effective under the
provision of the National Labor Relations Act of 1947 as amended, but not
retroactively.
b) The failure of any person to become a member of the Union as
required shall obligate the Employer, upon written notice from the Union to such
effect, and to the further effect that Union membership was available to such
person on the same terms and conditions generally available to other members, to
forthwith discharge such person. Further, the failure of any person to maintain
his Union membership in good standing as required herein shall, upon written
notice to the Employer by the Union to such effect, obligate the Employer to
discharge such person.
c) In the event of any change in the law during the term
of this Agreement, the Employer agrees that the Union will be entitled to
receive the maximum Union security which may be lawfully permissible.
d) No provision of this Article shall apply in any state to
the extent that it may be prohibited by State Law. If, under applicable State
Law, additional requirements must be met, before any such provision may become
effective such additional, requirements shall first be met.
e) If any provisions of this Article are invalid under the law
of any state wherein this Agreement is executed, such provisions shall be
modified to comply with the requirements of State Law or shall be renegotiated
for the purpose of adequate replacement. If such negotiations shall not result
in a mutually satisfactory agreement, the Union shall be permitted all legal or
economic recourse.
CHECK-OFF:
ART. 4. a) The Employer agrees to deduct, on the 1st payday of each
month, from the salary or wages of the employees covered by this Agreement, such
union dues and initiation fees as the Union, by written notice, advises the
Employer and regularly due as such from the employees, and will turn such monies
over to the Union on or before the
- 2 -
<PAGE>
tenth (10th) day of each month, covering such month in advance, together with a
listing of employees and amounts from whom such monies have been deducted,
provided, however, that the Employer will make such deductions only
from the wages of those employees who submit individual written
authorization to the Employer directing and authorizing the Employer to
make such deductions.
b) Any monies deducted from the employees are to remain the
property of the Union and in no event shall the Employer be permitted to
use said monies for any other purpose.
HOURS OF WORK:
ART. 5. a) Each regular shift shall consist of not more than eight (8)
hours per day, and shall constitute a regular work day, excluding a real period.
b) The regular work week shall consist of five (5)
consecutive days,
MONDAY THROUGH FRIDAY
c) The Employer my not require employees hired prior to July,
15, 1992, to work a 2nd or 3rd shift. In the event of a lay-off, a 1st shift
employee shall be given the option to work the 2nd or 3rd shift or accept a
lay-off.
OVERTIME:
ART. 6. a) Work performed in excess of eight (8) hours per day and/or
forty (40) hours per week shall be considered as overtime work and shall be paid
for at the rate of time-and-one-half (1-1/2) the regular rate of pay. Work
performed on the 7th working day shall be paid for at the rate of twice their
regular rate of pay.
b) In any week during which a holiday occurs, the holiday shall
be regarded as a regular day worked and overtime shall commence after thirty-two
(32) hours of work for that week.
c) All overtime shall be voluntary, and no employee shall be
discharged or discriminated against for refusing to work overtime.
d) The Employer will make every reasonable effort to distribute
overtime equally among its employees in their respective classifications.
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e) The Employer agrees to rake available to the Union, a record
of such overtime work for examination by the Union Representative.
UNION RIGHTS:
ART. 7. a) If any money owed by the Employer to the Union and/or
any Fringe Benefit Fund is in arrears thirty (30) days or more from the
1st day of the month when due, the Union shall notify the Employer of his
delinquency in writing, by certified mail. In the event the Employer does
not pay said money to the Union and/or any Fringe Benefit Fund within ten
(10) days of receipt of notice, the Union shall have the right to take
economic action. In such event, the Employer shall pay each employee or
employees on strike, or work stoppage, his regular rate of pay for such
time not worked.
b) If the Employer disputes the delinquency claimed by the
Union, the Employer may advise the Union of such dispute in writing, by
certified mail, within five (5) days of receipt of the delinquency notice and
agree to deposit the amount in dispute in escrow with the Union's Counsel. Upon
the receipt and collection of such deposit in escrow, the Union is precluded
from taking any economic action arising from said dispute.
HOLIDAYS:
ART. 8. a) The Employer shall not require its employees to work on the
following holidays:
NEW YEAR'S DAY LABOR DAY
GOOD FRIDAY THANKSGIVING DAY
MEMORIAL DAY CHRISTMAS DAY
JULY 4TH EMPLOYEE'S BIRTHDAY
Work performed on WASHINGTON'S BIRTHDAY and MARTIN LUTHER KING'S
BIRTHDAY, shall be paid at time-and-one-half (1-1/2) the
employee's regular rate of pay.
FOUR (4) PERSONAL DAYS AND/OR FLOATING HOLIDAYS: Employees shall
receive four (4) Personal Days and/or Floating-Holidays, pro-rated,
per Contract Year. Personal Days may be taken with Employer's
consent, and the Employer shall not unreasonably withhold
consent. Employees must give the Employer at least 48 hours'
prior notice of intention to take a Personal Day. If the
Employer wishes to designate a Floating Holiday, he must give at
least 48 hours' prior notice to the Union and to the employees.
All unused, pro-rated, Personal Days and/or Floating Holidays
shall be payable at the end of the Contract Year.
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b) To be eligible for holiday pay, the employee must work the
employee's scheduled day before and the employee's scheduled day after the said
holiday, unless that employee is absent due to illness or absent with the
Employer's consent and such absence does not exceed six (6) continuous weeks.
c) Employees who do not work on the aforementioned holidays
shall be paid for eight (8) hours at their regular rate of pay for such
holiday.
d) Employees who do work on the aforementioned holidays shall
be paid at the regular rate of pay for work performed and shall be paid at their
regular rate of pay for the holiday.
e) If any of the said holidays shall fall on a Saturday, at the
Employer's option, the Friday before may be designated as the holiday or the
Employer may elect to pay the employees for eight (8) hours at their regular
rate of pay for such holidays and such payment is to be included in the
employee's next paycheck.
f) If any of the said holidays fall on a Sunday, the Monday
following shall be designated as the holiday, and even though no work shall have
been performed by the employee or employees, they shall be paid for that day at
their regular rate of pay.
g) If any governmental agency changes the day of observance of
any of the aforementioned holidays, then the changed date shall become the
holidays. If there is any controversy as to the governmental change, then in
such event, the Employer can pick the day of observance.
h) If any of the above holidays shall fall within the
employee's vacation period, the Employer must include such holiday pay in the
first paycheck received after the employee's return to work.
i) Employees absent because of a compensable illness or injury
shall be entitled to full holiday pay at their regular rate of pay, less
what they receive in compensation, provided illness is temporary and does
not exceed six (6) continuous weeks.
NOTICE TO UNION:
ART. 9. a) Effective MAY 10, 1995 all Employers located in New York
State shall transmit, upon written request, to the Union, copies of the
following documents within ten (10) days of the receipt of such request:
(1) FORM #IA5 (New York State Unemployment Insurance Report); and
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(2) FORM #WT-4-B (New York State Wage Reporting System Return)
b) All Employers shall transmit, upon written request, to the
Union, FORM #941 (Employees' Quarterly Federal Tax Rate) within ten (10)
days of the receipt of such request.
c) Remittance Sheets, including ranges, new employees, starting
dates, employees' termination dates, gross wages earned for the preceding month,
for each employee the amounts of dues and initiation checked-off, contributions
to Fringe Benefit Funds and for what monthly periods, shall be remitted
once-a-month, within ten (10) days after the 1st day of each month, together
with checks made payable to the proper Fringe Benefit Fund and Dues and
Initiation to Local Union 531.
d) All necessary cards to the Fringe Benefit Funds, properly
signed from a new employee, must be submitted with the remittance sheet.
e) For failure to submit the remittance sheet within ten (10)
days after it is due, the Union, at their option, may take economic action until
it is submitted, and the Employer shall pay to employees for all time on strike
or work stoppage their regular rate of pay.
f) Should the Employer fail to notify the Union of the hiring
of a new employee and/or the rehiring of an employee, the Employer shall be
responsible from the 1st day due, for all monies as if he collected same, to the
Union for Dues, Initiations, and contributions to all Fringe Benefit Funds as
described herein.
g) For failure to remit monies due to the Union for dues,
initiations, contributions to any Fringe Benefit Fund together with the
remittance sheet on/or before the 30th day of accrual, the Union shall
charge a bookkeeping fee of two (2%) percent per month or any part
thereof until it is submitted and/or collected.
h) Should the Employer fail for any reason to notify the Union
of the termination of an employee, the Employer shall be responsible for
all monies as if he collected same, to the Union for dues, initiations
and contributions to all Fringe Benefit Funds, if any, as described
herein.
i) The Employer must sign all remittance sheets sent to the
Union.
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UNION AS THE PARTY AT INTEREST:
ART. 10. a) The Union shall require the employees to comply with the
terms of this Agreement. The parties agree that the maintenance of a peaceable
and constructive relationship between the Employer and the employees requires
the establishment and cooperative use of the machinery provided in the
discussion and determination of grievances and disputes and that it could
detract from this relationship if individual employees or a group of employees
would, either as such individuals or groups, seek to interpret or enforce the
Contract on their initiative or responsibility. It is therefore agreed that this
Contract shall not vest or create in any employee or group of employees covered
thereby, any rights or remedies which they, or any of them, can enforce either
at law, equity, or otherwise it being understood and agreed, on the contrary,
that all of the rights and privileges created or implied from this shall be
enforceable only by the parties hereto and only in the manner established by
this Contract, and at law.
b) The Employer shall show no discrimination against or
favoritism among its employees for Union activities or otherwise. This
Agreement may not be modified by the Employer or group of employees without
the joint written consent of the Union and the Employer.
c) The Employer shall, at all times, adhere to any governmental
agency rules regarding working conditions, facilities and equipment as it
respects all aspects of the Employer's operations.
WELFARE FUND:
ART. 11. In order to protect and promote the health and welfare of
employees, the Union has formed the SICK & WELFARE FUND, LOCAL 531 which is
administrated under a Declaration of Trust adopted by its members.
a) 1. The Employer, effective as of JUNE 1, 1995 shall pay, in advance
monthly or any part thereof, to the Sick & Welfare Fund the sum of $160.00 for
each employee covered by this Agreement. (CLASS I - FAMILY OR INDIVIDUAL PLAN)
2. The Employer, effective as of DECEMBER 1, 1995 shall pay, in
advance monthly or any part thereof, to the Sick & Welfare Fund the sum of
$175.00 for each employee covered by this Agreement. (CLASS I - FAMILY OR
INDIVIDUAL PLAN)
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3. The Employer, effective as of JUNE 1, 1996 shall pay, in advance
monthly or any part thereof, to the sick & Welfare Fund the sum of $190.00 for
each employee covered by this Agreement. (CLASS I - FAMILY OR INDIVIDUAL PLAN)
4. The Employer, effective as of JUNE 1, 1997 shall pay, in advance
monthly or any part thereof, to the Sick & Welfare Fund the sum of $210.00 for
each employee covered by this Agreement. (CLASS I - FAMILY OR INDIVIDUAL PLAN)
b) The monies so contributed shall be used for the purpose of
obtaining benefits that the Trustees deem necessary for such employees,
employees of the Union and the employees of all Fringe Benefit Funds in
accordance with the Trust Agreement covering such Fund.
c) Such payments shall not be in lieu of any other payments required
to be made by the Employer, such as New York Disability payments, New York
Unemployment Insurance, Social Security, Workmen's Compensation, etc.
d) The Employer shall continue to contribute to the Welfare Fund
for a period, not to exceed two (2) months, for each employee who is absent due
to sickness, injury, leave-of-absence, or termination of employment except for
just cause.
e) The Employer shall forfeit all rights under this Agreement and the
employee my cease to work if the Employer fails to pay its contributions after
the 60th day as provided above and/or the matter may be treated as a grievance
hereunder, except as may be otherwise provided for herein.
f) With its monthly remittance, the Employer will forward to the
Sick & Welfare Fund, Local 531, the names of the employees covered and such
information and signed cards as may be required by the Trustees of
the Fund for the administration of the Fund.
g) The Arbitrator may schedule a Hearing for any date on or
after the expiration of twenty-four (24) hours' notice sent by the Union to the
Employer and the Arbitrator shall render an award as quickly as possible. If the
Employer fails to appear, the Arbitrator shall proceed without the Employer
being present. In the absence of proof by the Employer, who shall bring to such
Hearing all books and records pertaining to the matter to be heard, the
Arbitrator shall determine the amount to the Fund on the petition of the Union
or the Fund, as to the amounts due and payable. In
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the absence of other proof by the Employer, all Welfare Fund payments due shall
be based on two (2) times the greatest number of employees as reflected in the
reports thereof submitted by the Employer to the Union during the two (2) year
period preceding.
h) In the event of default by the Employer in the payment of
contributions to the Funds mentioned in this Agreement, the Trustees may take
legal action to obtain payment, including, but not limited to, the commencement
of Arbitration Proceedings for such purposes before an Arbitrator, such
Arbitrator being Mr. George Sabatella. All expenses thereof, including, but not
limited to, the fee and expenses of the Arbitrator and any filing or other
administrative fees plus reasonable attorney's fees fixed at twenty (20%)
percent of the indebtedness, together with interest at a reasonable rate on any
monies determined to be due, shall be chargeable to and an obligation of the
contributing Employer against whom such suit is brought or such Arbitration
Proceedings is commenced. The Arbitrator may schedule a Hearing on twenty-four
(24) hours notice by certified mail.
i) The Union may elect not to proceed before the Arbitrator and
may proceed in any other manner provided for by law, as if the provisions of
ARTICLE 14 were not contained in this Agreement. In such event, the amounts due
and payable shall be determined in such other proceedings in the same manner as
is provided for above in determining such amounts before the Arbitrator, in the
absence of the Employer from such Hearing.
j) The "Welfare Fund" may audit the Employer's payroll books and
records after giving reasonable notice to the Employer, and if contributions are
significantly incorrect, the Employer shall pay the cost of such audit.
k) During the life of this Agreement, the Employer shall increase his
contributions above the effective increases as stated above, to the exact amount
that the insurance carrier will increase the premium to the Welfare Fund. The
increases in premium shall be based on the Family Plan. The Welfare Fund shall
furnish proof of such increase.
l) For failure to remit contributions to the Fund before the 30th day
after accrual, there shall be a one (1%) percent charge for every month, or any
part thereof, until such contributions are collected.
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NO STRIKE - NO LOCKOUT:
ART. 12. a) During the term of this Agreement, the Employer agrees
that they will not declare or authorize a lockout unless the Union fails
to comply with an arbitration award within forty-eight (48) hours after
the award has been made, and the Union agrees that no strike shall take
place except as otherwise provided herein unless the Employer fails to
comply with an arbitration award within forty-eight (48) hours after the
award has been made on the grievance procedure. Neither the Union nor its
Officers, Agents, or Representatives shall be liable for any acts of
person or any workers participating in any strike or work stoppage unless
such act or strike or work stoppage has been expressly authorized by the
Union and in conformance with the provisions of the Constitution of the
Union and the provisions of the International Union Constitution. The
parties further agree that any strike, slow-down, or work stoppage not
authorized as herein specified shall not be deemed a violation of this
Agreement.
b) In the event of an unauthorized slow-down or work stoppage,
the Union agrees within twenty-four (24) hours after receipt of notice thereof
from the Employer solely to endeavor in good faith to bring about a return to
work of its members who stopped work. Upon failure of the employees to return to
work within the said twenty-four (24) hours, the Employer may take appropriate
action with respect to such employee or employees. Compliance by the Union in
good faith herewith shall be deemed full compliance with the Union's obligation
hereunder.
DISCHARGE:
ART. 13. a) No employee shall be discharged or disciplined without just
and sufficient cause.
b) The Employer may, at his discretion, take action short of
discharge without prejudice to his right to discharge, provided, however, that
any disciplinary procedure shall be subject to the grievance procedures hereof.
c) If the Employer is found wrong in the discharge or
disciplinary suspension of an employee, the Arbitrator may award, but is not
obligated to award, compensation for lost time.
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d) Whenever the Union disputes and/or disagrees with the
justification for the discharge or discipline of any employee, the dispute
and/or disagreement shall thereupon be adjusted between the parties in the
manner provided for in ARTICLE 14 of this Agreement; provided, however, it shall
not be necessary to commence with steps (a) or (b) but institution of
arbitration may be accomplished by immediate recourse to Section (1) of said
article, and any employee who has been discharged and subsequently reinstated as
a result of arbitration shall be entitled to all remedies prescribed by the
Arbitrator.
e) The Employer must notify the Shop Steward and the Union in
writing, within three (3) working days of a discharge and/or disciplinary
action of an employee covered hereunder.
GRIEVANCE PROCEDURES:
ART. 14. SECTION 1.
A grievance is hereby jointly defined to be any controversy,
complaint, misunderstanding, or dispute.
Any grievance arising between the Employer and the Union or an
employee represented by the Union shall be settled in the following manner:
a) The aggrieved employee or employees must present the
grievance to the Shop Steward within five (5) working days after the
reason for the grievance has occurred, except that no time limit shall
apply in case of violation of wage provisions of this Agreement. If a
satisfactory settlement is not affected with the foreman within five (5)
days, the Shop Steward and employee shall submit such grievance to the
Union's Business Representative.
b) The Business Representative shall then take the matter up
with a representative of the Employer with authority to act upon such
grievance. A decision must be made within five (5) working days.
c) Saturday, Sunday, and holidays shall not be considered working days
for the purposes hereof.
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SECTION 2.
Any Shop Steward shall be permitted to leave his work for a
reasonable time to investigate and adjust the grievance of any employee
within his or her jurisdiction after notification to his or her Supervisor.
Employees shall have the Shop Steward or a Representative of the Union present
during discussion of any grievance with a representative of the Employer.
SECTION 3.
a) The parties agree that all disputes shall be arbitrated hereunder
by the Arbitrator selected by the Welfare Fund, in accordance with ARTICLE 11,
paragraph (h), except that within five (5) days of the receipt of notice of
intention to conduct an arbitration, should either party object to the dispute
being heard by said Arbitrator, then in such event, the matter shall be
submitted to a panel member of the New York State Mediation Board.
b) Expense of the Arbitrator selected or appointed shall be borne
equally by the Employer and the Union unless determined otherwise by the
Arbitrator.
c) If the Employer fails to comply with any settlement of the
grievance or fails to comply with the procedures of this Article, the Union
has the right to take all legal and economic action to enforce its demands.
d) Both parties agree to accept the decision of the Arbitrator
as final and binding.
SECTION 4.
The Arbitrator shall not have the authority to amend or modify this
Agreement or establish new terms and conditions under this Agreement. The
Arbitrator shall determine any question of arbitrability.
SENIORITY:
ART. 15. a) The Employer recognizes the principle of seniority.
Seniority for the purpose of lay-off shall be by department (molding, finishing,
fabrication). Employees, however, who are capable, shall have seniority in other
departments, in that the last employee hired shall be the first employee
laid-off, and the last employee laid- off shall be the first employee rehired.
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b) It is agreed by the Employer and the Union, that all Shop Stewards
and Officers of the Union have seniority over all employees in the plant,
provided they can do the work that is to be done.
c) Any employee who is absent due to lay-off, sickness, and/or
injury for six (6) consecutive months shall lose his seniority.
d) The rights of seniority in re-employment shall be accorded to a
laid-off employee prior to a new employee being hired, provided such laid-off
employee, within two (2) working days after notice to return to work has been
received by such employee, advises the Employer of the employee's availability
and willingness to return to work within seven (7) working days of the date said
notice to return to work was received by the employee. For the purpose of this
Article, such notice will be deemed received three (3) days after such notice is
sent to the employee by certified mail, return receipt requested, to the
employee's last known address.
e) Preference in assignment to shift work and choice of new jobs shall
be given to employees having higher seniority, providing they can do the work.
NON-DISCRIMINATION:
ART. 16. No employee or employees shall be discriminated against,
directly or indirectly because of their membership in or activity on behalf of
the Union nor will the Employer, directly or indirectly, discourage membership
in the Union, and the provisions of this Agreement shall apply to all employees
without discrimination as to sex, color, race, creed or national origin.
SAFETY & SANITARY CONDITIONS:
ART. 17. The Employer shall furnish and maintain safe and healthful
sanitary conditions.
EXISTING PRACTICES:
ART. 18. All benefits of employment in existence at the effective
date of this Agreement and not modified by the Agreement, shall be continued
without modification.
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VISITATIONS:
ART. 19. Union Representatives shall be given the right to enter
the plant premises at all reasonable times for the purpose of investigating
grievances and to secure the enforcement of the Contract and for such other
purposes as may be necessary; provided, however, that prior to entering the
plant property they shall first advise the front office of their presence and
intentions to enter the plant property.
LEAVE-OF-ABSENCE:
ART. 20. Any employee, upon application in writing, shall be granted
a leave-of-absence without pay, not to exceed one (1) month because of official
Union business, except that the Employer's consent is required for such leaves
other than official Union business and such consent will not be unreasonably
withheld. The Employer has the right to request verification of
leave-of-absence.
GUARANTEED WORK:
ART. 21. Employees regularly scheduled for full shift work shall
be given four (4) hours work or the monetary equivalent thereof unless notified
on the previous day not to report, except in cases of a utility company power
failure, Acts-of-God, or other such circumstances beyond the Employer's control.
TRIAL PERIOD:
ART. 22. All employees hired after MAY 10, 1995 shall be deemed
probationary employees on a trial period for the first sixty (60) days following
the 1st day of employment. A probationary employee may be discharged by the
Employer for any reason without such discharge being subject to the grievance
machinery as described in ARTICLE 14. After the completion of the employee's
trial period, the probationary employee shall be considered a regular employee
and his seniority shall date back to the date of original hiring. The Employer
may request, in writing, an additional thirty (30) days prior to the expiration
of the original sixty (60) days.
LIE DETECTOR TEST:
ART. 23. The Employer shall not require, request, or suggest that a
covered employee take a polygraph or any other form of lie detector test.
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REHIRE OF EMPLOYEES:
ART. 24. a) An employee rehired within one (1) year after last
termination of employment shall not have a trial period.
b) The Employer must contribute to all Fringe Benefit Funds from
the 1st day of the month following rehiring.
c) All periods of employment shall be dovetailed for the purpose
of seniority.
LIABILITY:
ART. 25. The Employer, by his Executive Officers, shall deduct the
regular monthly Dues and Initiation fees, and shall hold the same personally in
trust for the Union. These fees, together with all the contributions of all
Fringe Benefit Funds, shall become the personal responsibility, jointly and
severally, of each of the Executive officers and/or persons responsible for
making such deductions and contributions, and did not make same.
SEPARABILITY:
ART. 26. It is understood and agreed that if any provision of this
Agreement, or the application of such provision to any person or circumstances
shall be held invalid, the remainder of this Agreement or the application of
such provision to other persons or circumstances shall not be affected thereby.
COLLECTIVE BARGAINING:
ART. 27. The Employer agrees that it will negotiate with the Union
during the term of this Agreement concerning any matter involving the wages,
hours, and working conditions of the employees, which is not specifically
provided for in this Agreement and which is not the subject of any grievance.
PROMOTIONS:
ART. 28. An employee shall have the right to refuse a promotion out of
the bargaining unit.
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DISCOVERY:
ART. 29. a) In the event the Employer raises any grievance against an
employee, upon written request from the Union, the Employer shall disclose to
the Union any and all facts and material relevant to such grievance. The
Employer's failure to comply herewith shall preclude the introduction of any
such non-disclosed data at any and all future Arbitrations, Hearings,
Proceedings or Trials, and such failure to disclose are grounds for the
dismissal of such grievance.
b) In the event of any grievance raised by the Employer against an
employee, matters which have arisen within one (1) year immediately preceding
such grievance may be introduced in support of such grievance.
BULLETIN BOARD:
ART. 30. The Employer shall place a bulletin board in a conspicuous
and convenient place in order to post Union notices and Union literature.
DEATH-IN-FAMILY:
ART. 31. a) Each employee shall be entitled to THREE (3) working
days off, with pay, at his regular rate of pay, in the event of a death in his
immediate family (legal child, grandchild, legal guardian, mother, father,
sister, brother, or legal spouse).
b) The Employer has the right to ask for proof of death.
JURY DUTY:
ART. 32. In the event an employee is required to serve on Jury Duty,
the Employer shall pay the employee's regular rate of pay less what he receives
as a juror, not to exceed ten (10) working days, and only once during the life
of this Agreement.
PROTECTION OF RIGHTS:
ART. 33. a) Picket Line: It shall not be a violation of this Agreement,
and shall not be cause for discharge or disciplinary action, in the event an
employee: refuses to enter upon any property of his Employer or others involved
in a lawful primary picket line at his Employer's place of business, including
picket lines of union parties to this Agreement.
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b) Struck Goods: It shall not be a violation of this Agreement and it
shall not be a cause for discharge or disciplinary action if any employees:
refuse to perform any service which his Employer undertakes to perform as an
ally of an Employer or person whose employees are on strike, and which service,
but for such strikes, would be performed by the employees of the Employer or
person on strike.
ASSIGNABILITY:
ART. 34. This Agreement shall be binding upon the parties hereto,
their successors and assigns.
EFFECTIVE DATE:
ART. 35. All the terms and conditions of this Agreement shall be
effective as of MAY 10, 1995 except as otherwise indicated.
DURATION:
ART. 36. This AGREEMENT shall be effective as of the 10th DAY OF
MAY, 1995, and shall remain and continue in full force and effect until midnight
MAY 9, 1998, and from year to year thereafter unless either party gives written
notice to the other by certified mail, return receipt requested, at least sixty
(60) days prior to the date of expiration of this AGREEMENT or annual renewal
thereof that they desire to modify or amend or renegotiate same.
SUB-CONTRACTING:
ART. 37. The Employer shall not sub-contract work without first
offering such work to bargaining unit employees.
PRE-HIRING REQUIREMENTS:
ART. 38. a) The Employer shall require of each individual before they
are hired that they produce bona fide evidence of such individual's citizenship
status. In the event such individual is an alien, he must be required to produce
satisfactory proof of both his legal alien status and of his right to work.
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b) The Employer shall not employ any individual who cannot produce
either proof of U.S. Citizenship or of his right to work as an alien. The Union
may take economic action, despite any provision contrary hereof, should the
Employer not comply herewith.
UNIFORMS:
ART. 39. Each covered employee shall receive a Uniform Maintenance
Allowance of $8.00 per month.
WAGE & WAGE INCREASE:
ART. 40. a) Effective as of MAY 10, 1995 there shall be a general wage
increase of .30(cent) per hour based on a forty (40) hour week for all employees
covered by this Agreement.
b) Effective as of MAY 10, 1996 there shall he a general wage increase
of .25(cent) per hour based on a forty (40) hour week for all employees covered
by this Agreement.
c) Effective as of MAY 10, 1997 there shall be a general wage increase
of .20(cent) per hour based on a forty (40) hour week for all employees covered
by this Agreement.
d) The Employer agrees to establish a committee of Union employees and
management to address how to initiate incentive programs in departments that do
not participate in incentive programs currently.
e) Employees who shall not actually be working as of or on the
effective date of the wage increase provided herein shall be entitled to receive
such increases on their return or recall to work.
f) Should the Employer pay a newly hired employee after thirty
(30) days of employment, a rate which is above the then-scheduled rate for such
employee's category, then in such event, all other employees in the same
category shall receive an increase equivalent to their difference of pay
immediately. All other scheduled raises shall be granted in addition to such
increases.
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VACATIONS:
ART. 41. a) The Employer shall grant vacation, with pay, at their
regular rate of pay, for all its employees in accordance with the provisions of
this paragraph as set forth below.
All employees shall receive not less than their pro-rated vacation
provided they have the following eligibility:
AFTER 1 YEAR OF EMPLOYMENT BUT LESS THAN 2 YEARS............... 1 WEEK
AFTER 2 YEARS OF EMPLOYMENT BUT LESS THAN 5 YEARS.............. 2 WEEKS
AFTER 5 YEARS OF EMPLOYMENT BUT LESS THAN 6 YEARS--2 WEEKS PLUS 3 DAYS
AFTER 6 YEARS OF EMPLOYMENT BUT LESS THAN 7 YEARS--2 WEEKS PLUS 4 DAYS
AFTER 7 YEARS OF EMPLOYMENT.................................... 3 WEEKS
Employees hired August 1, 1992 and after shall receive a maximum of
two (2) weeks vacation.
EMPLOYEES MUST NOTIFY THEIR EMPLOYER, BY MAY 1ST, OF THEIR INTENTION
TO TAKE VACATION TIME. THE EMPLOYER SHALL CONFIRM, IN WRITING, THAT
SUCH VACATION TIME IS GRANTED TO SUCH EMPLOYEE NO LATER THAN MAY 10TH.
IN THE EVENT OF A DISPUTE, SENIORITY SHALL, PREVAIL. THE EMPLOYER HAS
THE RIGHT TO REFUSE GRANTING VACATION TIME TO AN EMPLOYEE SHOULD IT
CAUSE A SHORTAGE IN A PARTICULAR DEPARTMENT.
b) Vacation period to fall between JANUARY 1ST -AND- DECEMBER 31ST.
c) The Employer shall pay, to each employee, his vacation pay at his
regular rate of pay prior to the employee's going on his or her vacation.
d) Employees who have been employed for one (1) year or more and are
laid-off or discharged for any reason at any time during the term of this
Agreement, shall be paid a pro-rated vacation at the time of their job
severance. Such pro-rated vacation shall be based upon the vacation provisions
above set forth. Employees who voluntarily terminate (QUIT) their employment
must give the Employer at least two (2) weeks' prior notice in order to receive
their pro-rated vacation pay.
e) In order to compute vacation credit, THE DATE OF HIRE shall be the
credit date.
f) Employees enjoying a vacation that is more than two (2) weeks may,
at the Employer's option, split said vacation time (i.e. part summer and part
winter), but each such vacation period cannot be for less than one (1) week.
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SICK & MATERNITY LEAVE:
ART. 42. a) Sick Leave for the purpose of various privileges and benefits
of this Agreement, including leaves granted by the Employer, including Maternity
Leaves, shall be deemed periods of employment. Leaves shall not exceed a total
of four (4) months. No later than three (3) months after a leave begins,
employees must give the Employer notice of when they are returning to work. The
Employer shall give an employee suitable work available in accordance with their
condition.
b) Each employee covered by this Agreement shall receive, on a
pro-rated basis THREE (3) days per contract year as Sick Leave.
c) Beginning with the 3rd year of the employee's employment, he shall
receive one (1) additional Sick Leave day for each additional year employed, not
to exceed SEVEN (7) Sick Leave days.
d) At the end of the contract year, each employee covered by this
Agreement shall receive pay, at their regular rate of pay, for all unused Sick
Leave days.
e) Upon termination of an employee's employment by the Employer
for any reason, such an employee shall receive his regular rate of pay for all
earned unused Sick Leave days. Employees who voluntarily terminate (QUIT) their
employment, must give their Employer at least two (2) weeks' prior notice in
order to receive their pro-rated Sick Leave pay.
f) An employee shall notify his Employer, where practicable and
within a reasonable time, should such an employee require Sick Leave.
Employees shall notify their Employer, where practicable, when he or she
will be able to return to work.
g) If an employee is out sick more than TWO (2) days, then in such
event, the employer may request a medical certificate. The Employer, at his cost
and upon notice may send a doctor to examine the employee on Sick Leave and such
an employee must allow such an examination.
PART-TIME EMPLOYEES:
ART. 43. a) For purposes of this Agreement, a part-time employee shall
be defined as an employee who is regularly scheduled to work thirty-nine (39)
hours or less in a work week. Employees who work twenty (20) hours or less per
week shall not be entitled to receive vacation days, sick days, holidays and
personal days.
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b) Part-time employees, who are regularly scheduled to work more than
twenty (20) but less than forty (40) hours per week, shall receive pro-rated
vacation days, sick days, holidays and personal days.
c) Dues and initiation fees shall be deducted for part-time
employees in accordance with ARTICLE 4 hereof.
d) The Employer shall not contribute to the LOCAL 531 SICK &
WELFARE FUND for part-time employees who are regularly scheduled to work
twenty (20) hours or less per week.
e) No regularly full-time employee shall be laid-off while part-time
employees are employed.
f) Part-time employees cannot exceed 15% of the Employer's employees.
g) Employees who are regularly scheduled to work more than twenty (20)
hours per week but less than forty (40) hours shall receive pro-rated vacation
days, sick days, holidays and personal days.
h) The Employer shall contribute to the LOCAL 531 SICK & WELFARE FUND
for employees who are scheduled to work more than twenty (20) hours per week.
DRUG TESTING:
ART. 44. The Employer shall have the right to require prospective
employees to submit to a Drug Test.
LOCAL 531, INTERNATIONAL BROTHERHOOD ELECTRONIC HARDWARE CORPORATION
OF TEAMSTERS, A.F.L.-C.I.O.
By: /s/ Kevin Watts By: /s/ S. Franzone
-------------------------------- --------------------------
Kevin Watts, Secretary-Treasurer Andrew Franzone, President
Dated: /s/ 8/23/95 Dated: /s/ 10-24-95
----------------------------- -----------------------
NEGOTIATING COMMITTEE
illegible illegible
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illegible illegible
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INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of the day immediately preceding the
effective date of the initial public offering of the Company, by and among David
L. Kassel ("Kassel"), residing at 145 West 67th Street, Apt. 40D, New York, New
York 10023, Harry Goodman ("Goodman"), residing at 24 Ardsley Place, Rockville
Centre, New York 11570, Andrew Franzone ("Franzone"), residing at Box 651,
Strathmore Court, Remsenburg, New York 11960 and International Plastic
Technologies, Inc., a Delaware corporation with its principal place of business
at 320 Broad Hollow Road, Farmingdale, New York 11735 (the "Company"). All of
the parties to this Agreement are collectively referred to as the Parties.
Kassel, Goodman and Franzone are collectively referred to as the "Stockholders"
and individually as a "Stockholder".
WHEREAS, the Stockholders and the Company wish to provide for various
matters affecting the interests of the Stockholders as stockholders of the
Company and enter into this Agreement in order to effectuate such purpose; and
WHEREAS, each Stockholder is the owner of common stock of the Company,
par value $.001 per share (the "Common Stock");
WHEREAS, each of the Stockholders owns the number of shares of Common
Stock set forth in Schedule "A" to this Agreement; and
WHEREAS, all shares of Common Stock of the Company now held by a
Stockholder or any Permitted Transferee (as defined in Section 3)(collectively,
the "Stockholders Shares") shall be subject to this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and the terms and conditions set forth in this Agreement, the Parties
hereto agree as follows:
<PAGE>
1. Representations and Warranties.
Each of the Stockholders represents and warrants that:
(a) Ownership of Common Stock. He owns the number of shares of Common
Stock ascribed to him in Schedule "A" to this Agreement.
(b) Authorization. He has full right, power and authority to execute
this Agreement and to perform fully the obligations hereunder; he has duly
executed and delivered this Agreement, and this Agreement constitutes his legal,
valid and binding obligation, enforceable against him in accordance with its
terms.
(c) Conflicts. This Agreement does not and will not conflict with or
result in the breach of any term or provision of, or constitute a default under
any agreement or instrument to which he is a party or by which he is bound, or
any law, rule, regulation, order, judgment or decree of any court or
governmental authority applicable to him.
(d) Consents. Except as expressly contemplated by this Agreement, no
consent, approval, authorization, registration, declaration or filing with any
governmental authority is required to be obtained or made in connection with the
execution, delivery or performance of this Agreement.
2. General Restrictions on Disposition of Common Stock.
(a) None of the Stockholders nor any of their successors in interest
shall, directly or indirectly, sell, transfer, assign, pledge, option, mortgage,
hypothecate or otherwise dispose of or encumber any Stockholder Shares
(including, without limitation, transfers to any other Stockholder, dispositions
by gift, or other dispositions by operation of law), all of which acts shall be
deemed included in the term "transfer" as used in this Agreement, unless:
(i) such transfer is made in accordance with the provisions
of Sections 3 and
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4 of this Agreement;
(ii) such transferee agrees to be bound by this Agreement as
if named as a Stockholder herein, executes a counterpart hereof and executes
such further documents as may be necessary, in the opinion of the Company, to
make it a party hereto; and
(iii) such transfer is made pursuant to either (A) an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), and any applicable state securities laws, or (B) an
available exemption from the registration requirements of the Securities Act and
applicable state securities laws and, prior to any such transfer, the person
proposing the transfer provides to the Company a written opinion of legal
counsel which is reasonably satisfactory in form and substance to the Company
and its counsel to the effect that the proposed transfer may be effected without
registration under the Securities Act and any applicable state securities laws.
(b) Improper Transfer Ineffective. Any purported transfer of
Stockholder Shares in violation of this Agreement shall be null and void and the
Company shall refuse to recognize any such transfer for any purpose and shall
not reflect in its records any change in ownership of Stockholder Shares
pursuant to any such purported transfer.
3. Certain Permitted Transfers. The Company acknowledges that any of
the following transfers of Stockholder Shares by a Stockholder are subject only
to the restrictions contained in Sections 2(a)(ii) through 2(a)(iii) hereof (and
each of the persons or entities to whom a transfer is made pursuant to this
Section 3 is herein called a "Permitted Transferee"):
(a) a transfer upon or consequent to the death of a Stockholder or a
Permitted Transferee to the executors, administrators, personal representatives,
testamentary trustees, legatees or beneficiaries of a Stockholder or a
Stockholder's Permitted Transferee;
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(b) a transfer made to a Stockholder's spouse, parent or issue or a
Stockholder's Permitted Transferee, or to a trust, all of the beneficiaries of
which, or to a corporation, all of the stockholders of which include only a
Stockholder or a Stockholder's spouse, parents or issue or a Stockholder's
Permitted Transferee, or a trust for the sole benefit of one or more of the
foregoing;
(c) in the case of a Stockholder or a Stockholder's Permitted
Transferee which is a corporation, a transfer to an Affiliate (as hereinafter
defined) of such corporation; and, in the case in which a Stockholder or
Permitted Transferee is a trust, a transfer to any other trust or entity which
is controlled by the currently existing trustee of such trust and, in the case
of a grantor trust, to such grantor or his issue; provided, however, that, if a
transferee specified in this paragraph (c) ceases to be controlled by the
designated partner, trustee or grantor, or ceases to be owned by the transferor
corporation, Stockholder's Shares held by the transferee shall either be
transferred back to the Stockholder or to another Permitted Transferee; and
(d) a transfer by a Permitted Transferee of a Stockholder to a
Stockholder or to any other Stockholder's Permitted Transferee.
For purposes of this Section 3, "Affiliate" shall mean with respect to
a Stockholder, any Person (as hereinafter defined) that, directly or indirectly
controls, or is controlled by, or is under common control with a Stockholder.
For purposes of this Section 3, "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust or
unincorporated organization.
4. Purchase Upon A Stockholder's Death.
In the event of the death of any Stockholder, the deceased
Stockholder's estate may take the following actions with respect to the
Stockholder's Shares owned by the Stockholder at the time of his death:
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(a) Immediately upon the Stockholder's death, cause the Company to
redeem 250,000 shares of the Stockholder's Shares for $500,000, payable [in
lump sum]. (the "Initial Redemption")
(b) For each three (3) months' period after the Initial Redemption, the
estate of the deceased Stockholder may sell a number a number of shares of the
Stockholder's Shares in accordance with Rule 144 of the Securities Act of 1933,
as amended; provided, however that in no event shall the estate of a deceased
Stockholder be permitted to sell more than 25,000 shares of the Stockholder's
Shares within any three month period.
5. Incidental Registration Rights.
(a) If the Company at any time proposes to register any shares of
Common Stock under the Securities Act of 1933, as amended (the "Securities
Act"), by registration on Forms SB-1, SB-2 or any successor or similar form(s),
whether or not for sale for its own account (other than registrations of
securities in connection with an employee benefit plan, Company stock option or
dividend reinvestment plan or in connection with the acquisition of assets or
shares of or merger or consolidation with another corporation), and the
registration form to be used may also be used for the registration of shares of
Stockholder Shares (an "Incidental Registration"), the Company shall each such
time notify the Stockholders at least 30 days prior to the filing of any
registration statement with respect thereto. Upon the receipt of a written
request of any Stockholder made within 10 days after such notice (which request
shall specify the Common Stock intended to be disposed of by each holder and the
intended method of disposition thereof), the Company will use its best efforts,
subject to the limitations set forth below, to include in such registration all
such Stockholder Shares with respect to which the Company has received a written
request for inclusion by any Stockholder, provided that the Company shall not be
obligated to register in an Incidental Registration Stockholder Shares
constituting less than five percent (5 %) of the total number of shares of
Common Stock then outstanding, unless the Company shall be registering all of
the shares of Common Stock held by such Stockholder. Each request shall also
contain an undertaking from the Stockholders to provide all information and
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material and to take all actions as may be required by the Company in order to
permit the Company to comply with all applicable federal and state securities
laws. For the purposes of this subsection (a), "best efforts" shall not require
the Company to reduce the amount or sale price of the securities it proposes to
register.
(b) Each selling Stockholder shall pay all sales commissions or other
similar selling charges with respect to Stockholder Shares sold by such
Stockholder pursuant to a registration. The Company shall pay all registration
and filing fees, fees and expenses for compliance with federal and state
securities laws, printing expenses, messenger and delivery expenses, fees and
disbursements of counsel and accountants for the Company and fees and expenses
of one counsel for all selling Stockholders in connection with an Incidental
Registration, to be selected by the selling Stockholders holding a majority of
the Stockholder Shares to be sold in such registration, unless the applicable
state securities laws require that stockholders whose securities are being
registered pay their pro rata share of such fees, expenses and disbursements, in
which case each Stockholder participating in the registration shall pay its pro
rata share of all such fees, expenses and disbursements based on his pro rata
share of the total number of shares being registered.
(c) If an Incidental Registration is an underwritten registration, only
shares of Common Stock which are to be distributed by the underwriters may be
included in the registration. If the managing underwriters advise the Company in
writing that in their opinion the number of shares of Common Stock requested to
be included in such registration exceeds the number which can be sold in such
offering or will have a material adverse effect on the price of the shares of
Common Stock to be sold, the Company will include in such registration (i)
first, the shares of Common Stock which the Company proposes to register and
shares of Common Stock of any other holders of shares of Common Stock or
options, warrants or other securities convertible into Common Stock who are
entitled to incidental registration rights prior to those which the Stockholders
propose to register, allocated among the Company and such holders in accordance
with any agreement among the Company and such holders; and (ii) second,
Stockholder Shares which the Stockholders propose to register and shares of
Common Stock any
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<PAGE>
other holders of shares of Common Stock or options, warrants or other securities
convertible into Common Stock who are entitled to incidental registration rights
on a par with that which the Stockholders propose to register, in proportion to
the number of shares of Common Stock such Stockholders and other holders propose
to include in the Incidental Registration. The managing underwriters for a
registration pursuant to this Section shall be chosen by the Company.
(d) Notwithstanding the foregoing, if at any time after giving written
notice to the Stockholders of its intention to register any shares of Common
Stock pursuant to subsection (a) of this Section 5 and prior to the effective
date of the Registration Statement filed in connection with such registration,
the Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to each
Stockholder and thereupon shall be relieved of its obligation to register any
Stockholder Shares in connection with such registration (but not from its
obligation to pay certain expenses in connection therewith as provided in
subsection (b) above).
(e) The Company may suspend its obligation to register Stockholder
Shares pursuant to this Section 5 if, in the opinion of counsel to the Company,
the Stockholder Shares proposed to be sold pursuant to this Section 5 can be
sold in the same volume and manner as they are proposed to be sold by such
Stockholder in a transaction exempt from registration pursuant to the Securities
Act and similar state securities laws.
(f) Each Stockholder agrees not to sell or offer for sale any of his
Stockholder Shares within seven (7) days prior to or ninety (90) days after the
effective date of any registration (except as part of such registration).
6. Registration Upon Request.
(a) Request for Registration. At any time after the Company has
completed an initial public offering of common stock and warrants (the "IPO")
and shall no longer be restricted from commencing a second registration pursuant
to applicable law, one or more Stockholders holding
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in the aggregate at least 7% of the shares of outstanding Common Stock (each an
"Initiating Holder") may request in writing that the Company effect pursuant to
this Section 6 the registration of any of such Initiating Holders' Stockholder
Shares under the Securities Act (a "Demand Registration"). The Initiating
Holder's request shall specify the Stockholder Shares requested to be
registered, the proposed amounts thereof, and the intended method of disposition
by such Initiating Holders. Upon receipt of the initiating Holder's written
request, the Company shall promptly give written notice of such requested
registration to all Stockholders, and thereupon the Company will, as
expeditiously as reasonably possible, use its best efforts to effect the
registration of: (i) the Stockholder Shares which the Company has been so
requested to register by the Initiating Holder, for disposition in accordance
with the intended method of disposition stated in such request, and (ii) all
other Stockholder Shares owned by Stockholders, the holders of which shall have
made a written request to the Company for registration thereof (which request
shall specify the Stockholder Shares requested to be registered, the proposed
amounts thereof and the intended method of disposition by such Stockholder)
within thirty (30) days after the receipt of such written notice from the
Company, all to the extent requisite to permit the disposition by the holders of
the securities constituting Stockholder Shares so to be registered, provided
that the Company shall not be required to effect any registration pursuant to
this Section 6 if it is a registration with respect to which the Company is not
required to pay expenses pursuant to Section 6(b)(i) unless the Company shall
have received assurances satisfactory to it that the Initiating Holder will bear
the expenses of registration.
(b) Limitations on Registrations. The registration rights granted to
the Initiating Holders pursuant to this Section 6 are subject to the following
limitations:
(i) Each selling Stockholder shall pay all sales
commissions or other similar selling charges with
respect to his Stockholder Shares sold pursuant to a
registration. In connection with one Demand
Registration pursuant to this Section 6, at the
request of the Initiating Holder, the Company shall
pay all registration and filing fees, fees and
expenses of compliance with federal
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and state securities laws, printing expenses,
messenger and delivery expenses, fees and
disbursements of counsel and accountants for the
Company and fees and expenses of one counsel,
selected by the selling Stockholders holding a
majority of the Stockholder Shares to be sold in such
registration, for all selling Stockholders in
connection with a Demand Registration, unless the
applicable state securities laws require that
stockholders whose securities are being registered
pay their pro rata share of such fees, expenses and
disbursements, in which case each Stockholder
participating in the registration shall pay his pro
rata share of all such fees, expenses and
disbursements based on his pro rata share of the
total number of shares being registered. In all other
instances, the selling Stockholders shall pay all
expenses of a Demand Registration.
(ii) Initiating Holders holding a majority of the shares
of Common Stock held by all Initiating Holders shall
determine (A) whether such Demand Registration shall
be the one Demand Registration in which the Company
pays expenses pursuant to clause (i) of this section,
(B) the method of distribution of the securities to
be registered and (C) if an underwritten offering,
shall select the managing underwriter of such
offering;
(iii) the Company shall be entitled to postpone for a
reasonable time not exceeding one hundred twenty
(120) days the filing of any registration statement
under this Section 6 if, at the time it receives a
request for a Demand Registration pursuant thereto,
the Board of Directors of the Company shall determine
in good faith that such offering will interfere with
a pending financing, merger, sale of assets,
recapitalization or other corporate action which the
Company is actively pursuing and is material to the
business of the Company; and
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(iv) a Registration Statement that does not become
effective or does not remain effective for the period
specified in Section 7(b) shall be deemed not to
constitute a Registration Statement filed pursuant to
this Section 6, provided that, if such Registration
Statement does not become effective or -------- does
not remain effective for such period solely by reason
of the Initiating Holders' refusal to proceed, it
shall be deemed to constitute a Registration
Statement filed pursuant to this Section 6, unless
the Initiating Holders shall have elected to pay all
expenses in connection with such registration as
aforesaid.
(c) If any registration pursuant to this Section 6 involves an
underwritten offering and the managing underwriter requests that the
participants in such offering grant the underwriters an over-allotment or "green
shoe" option for the purpose of covering over-allotments that may be made by the
underwriters in connection with such offering, then a percentage of the shares
proposed to be sold by each selling Stockholder, which portion shall not exceed
the maximum amount then permitted by the rules of the National Association of
Securities Dealers, Inc. and shall equal the percentage of the shares proposed
to be sold by other sellers in the offering that is applied to the same purpose,
shall be made subject to such over-allotment option, unless otherwise agreed in
the underwriting agreement relating thereto. Each of the Initiating Holders and
the other sellers may withdraw from any Demand Registration pursuant to this
Section 6 by giving written notice to the Company, the managing underwriter, if
any, and the other Stockholders prior to the effective date of such Registration
Statement.
(d) The Company may suspend its obligation to register shares of Common
Stock by a Stockholder pursuant to this Section 6 if, in the opinion of counsel
to the Company, the shares of Common Stock proposed to be sold by such
Stockholder pursuant to this Section 6 can be sold in the same volume and manner
as they are proposed to be sold by such Stockholder in a transaction exempt from
registration pursuant to the Securities Act, as amended, and similar state
securities laws.
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(e) Each Stockholder agrees not to sell or offer for sale any of such
Stockholder's shares of Common Stock within seven (7) days prior to or ninety
(90) days after the effective date of any registration (except as part of such
registration).
7. Registration Procedures. If and whenever the Company is required to
use its best efforts to effect the registration of any Stockholder Shares under
the Securities Act as provided in this Agreement, the Company will promptly:
(a) prepare and file with the Securities Exchange Commission (the
"SEC") a Registration Statement with respect to such securities and use its best
efforts to cause such Registration Statement to become effective;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement until such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such Registration
Statement, but in no event for a period of more than four (4) months after such
Registration Statement becomes effective;
(c) furnish to counsel (if any) selected by the selling Stockholders
holding a majority of the Stockholder Shares to be sold in such registration,
copies of all documents proposed to be filed with the SEC in connection with
such registration, which documents will be subject to the review of such counsel
prior to filing with the SEC;
(d) furnish to each seller of securities such number of conformed
copies of such Registration Statement and of each amendment and supplement
thereto (in each case including all exhibits, except that the Company shall not
be obligated to furnish any seller of securities
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with more than 2 copies of such exhibits), such number of copies of the
prospectus comprised in such Registration Statement (including each preliminary
prospectus and any summary prospectus), in conformity with the requirements of
the Securities Act, and such other documents, as such seller may reasonably
request in order to facilitate the disposition of the securities owned by such
seller;
(e) use its best efforts to register or qualify such securities covered
by such Registration Statement under such other securities or blue sky laws of
such jurisdictions as may apply, and do any and all other acts and things which
may be necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such seller, except
that the Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it is not so
qualified, or to consent to general service of process in any such jurisdiction;
(f) in connection with an underwritten offering only, furnish to each
seller copies of: (i) an opinion of counsel for the Company, dated the effective
date of the Registration Statement, and (ii) a "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included in the Registration Statement, each covering substantially
the same matters with respect to the Registration Statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountant's letters delivered to
the underwriters in underwritten public offerings of securities;
(g) notify each seller of any such securities covered by such
Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, or the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein
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not misleading in the light of the circumstances then existing, and at the
request of any such seller prepare and furnish to such seller a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(h) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to its security holders, as soon
as reasonably practicable, an earnings statement covering the period of at least
twelve (12) months, but not more than eighteen (18) months, beginning with the
first month after the effective date of the Registration Statement, which
earnings statement shall satisfy the provisions of section 11(a) of the
Securities Act; and use its best efforts to list such securities on any
securities exchange on which the Common Stock is then listed, if such securities
are not already so listed and if such listing is then permitted under the rules
of such exchange, and to provide a transfer agent and registrar (which, in each
case, may be the Company) for such Stockholder Shares not later than the
effective date of such registration statement.
The Company may require each seller of any securities as to which any
registration is being affected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing and as shall be required by law in
connection therewith.
Each Stockholder hereby agrees that upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 7(g),
such holder will promptly discontinue such holder's disposition of Stockholder
Shares pursuant to the Registration Statement covering such Stockholder Shares
until such holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 7(g), and, if so directed by the Company,
will deliver to the Company (at the Company's expense) all copies, other than
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permanent file copies, then in such holder's possession of the prospectus
covering such Stockholder Shares current at the time of receipt of such notice.
In the event the Company shall give such notice, the period mentioned in Section
7(b) shall be extended by the number of days during the period from and
including the date when each seller of any Stockholder Shares covered by such
Registration Statement shall have received the notice of the event of the kind
described in Section 7(g) to but not including the date when each such seller
receives copies of the supplemented or amended prospectus contemplated by
Section 7(g).
8. Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any Stockholder Shares under the Securities Act, the Company
will, and hereby does, indemnify and hold harmless, in the case of any
Registration Statement filed pursuant to Section 5 or 6 hereof, each
Stockholder, insofar as such losses, claims, damages or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement under which such
Stockholder Shares were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made not
misleading, and the Company will reimburse each Stockholder for any legal or
any other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
Registration Statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by or on behalf of such Stockholder specifically stating that it is
for use in the preparation thereof. Such
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<PAGE>
indemnity shall remain in full force regardless of any investigation made by or
on behalf of a Stockholder.
(b) Indemnification by Selling Stockholders. As a condition to
including any Stockholder Shares in any Registration Statement, the Company
shall have received an undertaking satisfactory to it from each Stockholder so
including his Stockholder Shares in such Registration Statement, to indemnify
and hold harmless ( in the same manner and to the same extent as set forth in
subdivision (a) of this Section 8) the Company, and each director of the
Company, each officer of the Company and each other Person, if any, who controls
the Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such Stockholder specifically
stating that it is for use in the preparation of such Registration Statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement; provided, however, that the liability of a Stockholder under this
Section 8(b) shall be limited to the amount of proceeds received by such
indemnifying party in the offering giving rise to such liability. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Company or any such director, officer, or controlling Person
and shall survive the transfer of such securities by a Stockholder.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 8, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 8, except to the
extent that the indemnifying party is actually
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<PAGE>
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, the indemnifying party shall be entitled to
participate in and, unless in such indemnified party's reasonable judgement a
conflict of interest between such indemnified and indemnifying parties may exist
in respect of such claim, to assume the defense thereof jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent (which consent shall
not be unreasonably withheld). No indemnifying party shall, without the consent
of the indemnified party (which consent shall not be unreasonably withheld),
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation.
(d) Contribution. If the indemnification provided for in this Section 8
shall for any reason be held by a court to be unavailable to an indemnified
party under paragraph (a) or (b) hereof in respect of any loss, claim, damage,
or liability, or any action or proceeding in respect thereof, then, in lieu of
the amount paid or payable under subparagraph (a) or (b) hereof, the indemnified
party and the indemnifying party under subparagraph (a) or (b) hereof shall
contribute to the aggregate losses, claims, damages, and liabilities (including
legal or other expenses reasonably incurred in connection with investigating the
same), (i) in such proportion as is appropriate to reflect the relative fault of
the Company and the Stockholders covered by the Registration Statement which
resulted in such loss, claim, damage or liability, or action in respect thereof,
with respect to the statement or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable consideration, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable
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<PAGE>
law, in such proportion as shall be appropriate to reflect the relative benefits
received by the Company from the offering of the securities covered by such
Registration Statement. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim
effected without such Person's consent, which consent shall not be unreasonably
withheld.
(e) Other Indemnification. Indemnification and contribution similar to
that specified in the preceding subdivisions of this Section 8 (with appropriate
modifications) shall be given by the Company and the Stockholders proposing to
offer and sell Stockholder Shares with respect to any required registration or
other qualification of securities under any federal or state law or regulation
of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
required by this Section 8 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage, or liability is incurred.
(g) Additional Rights. Any indemnification agreements contained herein
shall be in addition to any other rights to indemnification or contribution
which any indemnified party may have pursuant to law or contract and shall
remain operative and in full force and effect regardless of any investigation
made or omitted by or on behalf of any indemnified party.
9. Books, Records and Reports.
Within one hundred twenty (120) days of the end of each fiscal year,
the Company shall mail to each of the Stockholders a report setting forth an
audited balance sheet at the end of such fiscal year and audited statements of
income and source and use of funds for such fiscal year of the Company, and any
other information the Company deems necessary or desirable. If
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requested by a Stockholder, the Company will furnish quarterly financial
statements to such Stockholder as soon as they become available.
10. Stock Certificate Legend.
A copy of this Agreement shall be filed with the Secretary of the
Company and kept with the records of the Company. Each certificate representing
Stockholder Shares shall bear upon its face substantially the following legend,
in addition to any other legends that may be required:
(i) THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, ("THE
SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND
UNTIL REGISTERED UNDER THE SECURITIES ACT, AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS IN THE OPINION OF
COUNSEL, SATISFACTORY TO THE ISSUER, SUCH SALE OR TRANSFER
IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE
WITH THE SECURITIES ACT.
(ii) THE SALE, TRANSFER OR ENCUMBRANCE OF THE SHARES OF COMMON
STOCK REPRESENTED BY THIS CERTIFICATE IS RESTRICTED AND
SUBJECT TO THE TERMS OF A STOCKHOLDERS' AGREEMENT, DATED AS OF
THE DAY IMMEDIATELY PRECEDING THE EFFECTIVE DATE OF THE
INITIAL PUBLIC OFFERING OF THE COMPANY, COPIES OF WHICH ARE ON
FILE AT THE OFFICE OF THE COMPANY.
The certificate representing Stockholder Shares for sale pursuant to an
effective Registration Statement under the Securities Act or pursuant to Rule
144 (to the extent permitted hereby) shall be replaced, at the expense of the
Company, with certificates without the legend required by subsection 10(i)
above.
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<PAGE>
11. Certificate of Incorporation; By-Laws; Restrictions on Other
Agreements; No Circumvention; etc.
Each Stockholder shall vote his shares of Common Stock, at any regular
or special meeting of stockholders of the Company or in any written consent
executed in lieu of such a meeting of stockholders, and shall take all other
actions necessary to ensure that the certificate of incorporation and by-laws of
the Company do not, at any time, conflict with the provisions of this Agreement.
No Stockholder may do indirectly, that which he is not permitted to do by this
Agreement. In the event that any stock or other securities are issued in respect
of, in exchange for, or in substitution of, any shares of Common Stock by reason
of any reorganization, recapitalization, reclassification, merger,
consolidation, spinoff, partial or complete liquidation, stock dividend, stock
split or revere stock split, sale of assets, distribution to stockholders or
combinations of the shares of Common Stock or any other change in the Company's
capital structure, such capital stock or other securities shall be deemed
subject to this Agreement, and appropriate adjustments shall be made in the
percentages specified in this Agreement and as otherwise may be necessary to
fairly and equitably preserve, as far as practicable, the original rights and
obligations of the parties.
12. Participation in Underwritten Registrations.
No Stockholder may participate in any underwritten registration
hereunder unless such Stockholder (i) agrees to sell such Stockholder's
securities on the basis provided in any underwriting arrangements approved by
the Stockholders entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements or this Agreement.
13. Termination.
This Agreement shall terminate on the earlier of: (i) ten (10) years
from the date of this Agreement or (ii) the date on which neither Kassel,
Goodman nor Franzone own any Common Stock.
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<PAGE>
14. Binding Effect.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their respective heirs, legal representatives,
and successors.
15. Notices.
Notices and other communications required or permitted to be given
under this Agreement shall be in writing and shall be deemed duly given when
delivered personally or sent by mail (certified or registered mail, postage
prepaid, return receipt requested), as follows:
If to David L. Kassel:
145 West 67th Street, Apt. 40D
New York, New York 10023
If to Harry Goodman:
24 Ardsley Place
Rockville Centre, New York 11570
If to Andrew Franzone:
Box 651, Strathmore Court
Remsenburg, New York 11960
If to International Plastic Technologies, Inc.:
320 Broadhollow Road
Farmingdale, New York 11735
With a copy to:
Koerner Silberberg & Weiner, LLP
112 Madison Avenue, Third Floor
New York, New York 10016
Attention: Carl Seldin Koerner, Esq.
or at such other address as such party shall have furnished to the other parties
in writing.
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<PAGE>
16. Entire Agreement; Amendments.
This Agreement embodies the entire agreement and understanding between
the Parties relating to the subject matter hereof. Neither this Agreement nor
any provision hereof may be changed, discharged or terminated without an
instrument in writing signed by the Company and each of the Stockholders at the
time owning shares of Common Stock.
17. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware regardless of the law that
might be applied under principles of conflicts of law.
18. Headings.
All headings are inserted herein for convenience only and do not form a
part of this Agreement.
19. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered on the date first above written.
INTERNATIONAL PLASTIC TECHNOLOGIES,
INC.
By: /s/ Andrew Franzone
------------------------------
Andrew Franzone, President
/s/ David L. Kassel
------------------------------
David L. Kassel
/s/ Harry Goodman
------------------------------
Harry Goodman
/s/ Andrew Franzone
------------------------------
Andrew Franzone
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<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
1998 STOCK OPTION AND GRANT PLAN
1. PURPOSE
This Stock Option and Grant Plan (the "Plan") is intended as a performance
incentive for officers, employees, consultants and other key persons of
International Plastic Technologies, Inc. and its subsidiaries (unless otherwise
indicated herein, International Plastic Technologies, Inc. and its subsidiaries
are hereinafter referred to as the "Company") to enable the persons to whom
options are granted (the "Optionees") or to whom shares of common stock are
granted (the "Grantees") to acquire or increase a proprietary interest in the
success of the Company. The Company intends that this purpose will be effected
by the granting of "incentive stock options" ("Incentive Options") as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonqualified stock options ("Nonqualified Options") and outright grants of
common stock under the Plan. The term "subsidiary" when used in the Plan shall
mean any subsidiary of International Plastic Technologies, Inc. within the
meaning of Section 424(f) of the Code.
2. OPTIONS TO BE GRANTED AND ADMINISTRATION
(a) Options granted under the Plan may be either Incentive Options or
Nonqualified Options, and shall be designated as such at the time of grant. To
the extent that any option intended to be an Incentive Option shall fail to
qualify as an "incentive stock option" under the Code, such option shall be
deemed to be a Nonqualified Option.
(b) The Plan shall be administered by the Board of Directors of the Company
(the "Board of Directors") or by a committee (the "Compensation Committee") of
not less than two directors of the Company appointed by the Board of Directors
all of whom are (1) not employees of the Company and "non employee directors"
within the meaning of Rule 16b-3(b) (3) (i) promulgated under the Securities
Exchange Act of 1934, as amended (the "Act"), and (2) "outside directors" within
the meaning of Section 162(m) of the Code.
(c) Subject to the terms and conditions of the Plan, the Compensation
Committee shall have the power:
(i) To determine from time to time the options or stock to be granted
to eligible persons under the Plan (hereinafter referred to as the
"Optionees"), to prescribe the terms and provisions (which need not be
identical) of options granted under the Plan to such persons and to approve
the grant of options, as the case may be;
<PAGE>
(ii) To construe and interpret the Plan and grants thereunder and to
establish, amend, and revoke rules and regulations for administration of
the Plan. In this connection, the Compensation Committee may correct any
defect or supply any omission, or reconcile any inconsistency in the Plan,
in any option agreement, or in any related agreements, in the manner and to
the extent it shall deem necessary or expedient to make the Plan fully
effective;
(iii) to accelerate the exercisability or vesting of all or any
portion of any option;
(iv) subject to the provisions of Section 5(a), to extend the period
in which options may be exercised;
(v) generally, to exercise such powers and to perform such acts as are
deemed necessary or expedient to promote the best interests of the Company
with respect to the Plan.
All decisions and determinations by the Compensation Committee in the exercise
of its powers shall be final and binding upon the Company and the Optionees.
3. STOCK
(a) The stock granted under the Plan, or subject to the options granted
under the Plan, shall be shares of the Company's authorized but unissued common
stock, par value $.001 per share (the "Common Stock"). The total number of
shares that may be issued under the Plan shall not exceed an aggregate of
300,000 shares of Common Stock. Such numbers shall be subject to adjustment as
provided in Section 7 hereof.
(b) Whenever any outstanding option under the Plan expires, is canceled or
is otherwise terminated (other than by exercise), the shares of Common Stock
allocable to the unexercised portion of such option may again be the subject of
options of Common Stock under the Plan.
4. ELIGIBILITY
(a) Incentive Options may be granted only to officers or other employees of
the Company, including members of the Board of Directors who are also employees
of the Company. Nonqualified Options may be granted to officers or other
employees of the Company, members of the Board of Directors who are also
employees of the Company, and consultants and other key persons who provide
services to the Company (regardless of whether they are also employees). Grants
of Common Stock may be made to any officer, director, employee, consultant or
other key person of the Company.
(b) No Optionee shall be eligible to receive any Incentive Option under the
Plan if, at the date of grant, such Optionee beneficially owns stock
representing in excess of 10% of the voting
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<PAGE>
power of all outstanding capital stock of the Company or any "parent
corporation" within the meaning of Section 424(e) of the Code or any subsidiary
(a "Ten Percent Stockholder") unless (i) the purchase price for the Common Stock
subject to such option is at least 110% of the fair market value of such stock
at the time of the grant and (ii) the option by its terms is not exercisable
more than five years from the date of grant thereof.
(c) Notwithstanding any other provision of the Plan, to the extent that the
aggregate fair market value of the stock with respect to which Incentive Options
are exercisable for the first time by any individual during any calendar year
(under all plans of the Company and its parent) exceeds $100,000, the options
attributable to the excess over $100,000 shall be treated as Nonqualified
Options under the Plan. Such annual limitation shall be applied by taking
Incentive Options into account in the order in which they were granted.
5. TERMS OF THE OPTION AGREEMENTS
Subject to the terms and conditions of the Plan, each option agreement
shall contain such provisions as the Compensation Committee shall from time to
time deem appropriate. Option agreements need not be identical, but each option
agreement by appropriate language shall include the substance of all of the
following provisions:
(a) Expiration; Termination of Employment. Notwithstanding any other
provision of the Plan or of any option agreement, each option shall expire on
the date specified in the option agreement, which date in the case of any
Incentive Option shall not be later than the tenth anniversary of the date on
which the option was granted; provided, however, that if such Incentive Option
is held by a Ten Percent Stockholder, the expiration date of such Incentive
Option shall not be later than five years from the date of grant thereof. If an
Optionee's employment or service as a director with the Company terminates for
any reason, the Compensation Committee may in its discretion provide, at any
time, that any outstanding option granted to such Optionee under the Plan shall
be exercisable, subject to the expiration date of such option, for such period
following termination of employment as may be specified by the Compensation
Committee, which period for purposes of Incentive Options shall not exceed three
months where such termination is not due to death or disability (within the
meaning of Section 22(e) (3) of the Code) or one year where such termination is
due to death or disability. If an Optionee's employment or service as a director
with the Company terminates due to the Optionee's willful actions against the
interests of the Company, the option may be terminated upon written notice to
the Optionee; in such a case, the option will cease to be exercisable
immediately upon the Optionee's receipt of such written notice.
(b) Minimum Shares Exercisable. The minimum number of shares with respect
to which an option may be exercised at any one time shall be five hundred (500)
shares, or such lesser number as is subject to exercise under the option at the
time, provided that no fractional shares may be issued.
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<PAGE>
(c) Exercise. Each option shall be exercisable in such installments (which
need not be equal) and at such times as may be designated by the Compensation
Committee. To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the option expires.
(d) Purchase Price. The purchase price per share of Common Stock subject to
each option shall be determined by the Compensation Committee; provided,
however, that the purchase price per share of Common Stock subject to each
Incentive Option shall be not less than the fair market value of the Common
Stock on the date such Incentive Option is granted. For the purposes of the
Plan, the fair market value of the Common Stock shall be determined in good
faith by the Compensation Committee; provided, however, that (i) if the Common
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") Small-Cap Market on the date the option is
granted, the fair market value shall not be less than the average of the highest
bid and lowest asked prices of the Common Stock on NASDAQ reported for such date
or, if no prices were reported for such date, for the last date preceding such
date on which prices were reported, (ii) if the Common Stock is admitted to
trading on a national securities exchange or the NASDAQ National Market System
on the date the option is granted, the fair market value shall not be less than
the closing price reported for the Common Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last date
preceding such date for which a sale was reported, and (iii) the fair market
value of the Common Stock on the effective date of the registration statement
for the Company's initial public offering shall be the initial offering price.
(e) Rights of Optionees. No Optionee shall be deemed for any purpose to be
the owner of any shares of Common Stock subject to any option unless and until
(i) the option shall have been exercised pursuant to the terms thereof, (ii) all
requirements under applicable law and regulations shall have been complied with
to the satisfaction of the Company, (iii) the Company shall have issued and
delivered the shares to the Optionee, and (iv) the Optionee's name shall have
been entered as a stockholder of record on the books of the Company. Thereupon,
the Optionee shall have full voting, dividend and other ownership rights with
respect to such shares of Common Stock.
(f) Transfer. No option granted hereunder shall be transferable by the
Optionee other than by will or by the laws of descent and distribution, and such
option may be exercised during the Optionee's lifetime only by the Optionee, or
his or her guardian or legal representative.
6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Any option granted under the Plan may be exercised by the Optionee in
whole or, subject to Sections 5(b) and 5(c) hereof, in part by delivering to the
Company on any business day a written notice specifying the number of shares of
Common Stock the Optionee then desires to purchase (the "Notice"). As a
condition precedent of the exercise of any option, the Optionee shall
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<PAGE>
pay or make arrangements for the payment of all taxes to be withheld, in
accordance with Section 9 of the Plan.
(b) Payment for the shares of Common Stock purchased pursuant to the
exercise of an option shall be made either: (i) in cash, or by certified or bank
check or other payment acceptable to the Company, equal to the option exercise
price for the number of shares specified in the Notice (the "Total Option
Price"); (ii) if authorized by the applicable option agreement and if permitted
by law, by delivery of shares of Common Stock that the Optionee has beneficially
owned for more than six months and which the Optionee may freely transfer having
a fair market value, determined by reference to the provisions of Section 5(d)
hereof, equal to or less than the Total Option Price, plus cash in an amount
equal to the excess, if any, of the Total Option Price over the fair market
value of such shares of Common Stock; or (iii) by the Optionee delivering the
Notice to the Company together with irrevocable instructions to a broker to
promptly deliver the Total Option Price to the Company in cash or by other
method of payment acceptable to the Company; provided, however, that the
Optionee and the broker shall comply with such procedures and enter into such
agreements of indemnity or other agreements as the Company shall prescribe as a
condition of payment under this clause (iii).
(c) The delivery of certificates representing shares of Common Stock to be
purchased pursuant to the exercise of an option will be contingent upon the
Company's receipt of the Total Option Price and of any written representations
from the Optionee required by the Compensation Committee, and the fulfillment of
any other requirements contained in the option agreement or applicable
provisions of law.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
(a) If the shares of the Company's Common Stock as a whole are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, combination of shares, exchange of shares, change in
corporate structure or the like, an appropriate and proportionate adjustment
shall be made in the number and kind of shares subject to the Plan, and in the
number, kind, and per share exercise price of shares subject to unexercised
options or portions thereof granted prior to any such change. In the event of
any such adjustment in an outstanding option, the Optionee thereafter shall have
the right to purchase the number of shares under such option at the per share
price, as so adjusted, which the Optionee could purchase at the total purchase
price applicable to the option immediately prior to such adjustment.
(b) Adjustments under this Section 7 shall be determined by the
Compensation Committee and such determinations shall be conclusive. The
Compensation Committee shall have the discretion and power in any such event to
determine and to make effective provision for acceleration of the time or times
at which any option or portion thereof shall become exercisable.
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<PAGE>
No fractional shares of Common Stock shall be issued under the Plan on account
of any adjustment specified above.
8. EFFECT OF CERTAIN TRANSACTIONS
In the case of (i) the dissolution or liquidation of the Company, (ii) a
reorganization, merger, consolidation or other business combination in which the
Company is acquired by another entity (other than a holding company formed by
the Company) or in which the Company is not the surviving entity, or (iii) the
sale of all or substantially all of the assets of the Company to another entity,
the Plan and the options issued hereunder shall terminate upon the effectiveness
of any such transaction or event, unless provision is made in connection with
such transaction for the assumption of options theretofore granted, or the
substitution for such option of new options of the successor entity or parent
thereof, with appropriate adjustment as to the number and kind of shares and the
per share exercise prices, as provided in Section 7. In the event of such
termination, all outstanding options whether or not then currently exercisable
for shares of Common Stock shall be exercisable for at least fifteen (15) days
prior to the date of such termination whether or not otherwise exercisable
during such period.
9. TAX WITHHOLDING
(a) Each Optionee shall, no later than the exercise date of any option, pay
to the Company, or make arrangements satisfactory to the Compensation Committee
regarding payment of any federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the Optionee.
(b) To the extent permitted by the Compensation Committee, an Optionee may
elect to have his tax withholding obligation satisfied, in whole or in part, by
(i) authorizing the Company to withhold from shares of Common Stock to be issued
pursuant to any option number of shares with an aggregate fair market value
(determined by reference to the provisions of Section 5(d) hereof), that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Common Stock owned by the Optionee with an aggregate fair market value
(determined by reference to the provisions of Section 5(d) hereof) that would
satisfy the withholding amount due.
10. NON-TRANSFERABILITY OF OPTION RIGHTS
No option shall be transferable except by will or the laws of descent and
distribution. During the lifetime of any Optionee, the option shall be
exercisable only by such Optionee.
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<PAGE>
11. NO OBLIGATION TO EXERCISE OPTION
Granting of an option shall impose no obligation on the recipient to
exercise such option.
12. USE OF PROCEEDS
The proceeds received from the sale of stock pursuant to the Plan shall be
used for general corporate purposes.
13. RIGHTS AS A STOCKHOLDER
An Optionee shall have no rights as a stockholder with respect to any stock
covered by his or her option until such Optionee shall have become the holder of
record of such stock, and shall not be entitled to any dividends or
distributions or other rights in respect of such stock for which the record date
is prior to the date on which he or she shall have become the holder of record
thereof.
Notwithstanding anything herein to the contrary, the Compensation
Committee, in its sole discretion, may restrict the transferability of all or
any number of shares of stock issued under the Plan upon the exercise of an
option by legending the stock certificate as it deems appropriate.
14. EMPLOYMENT RIGHTS
Nothing in the Plan or in any option granted hereunder shall confer on any
Optionee any right to continue in the employ of the Company, or to interfere in
any way with the right of the Company to terminate the Optionee's employment at
any time.
15. COMPLIANCE WITH THE LAW
The Company is relieved from any liability for the nonissuance or
non-transfer, or any delay in issuance or transfer, of any shares of stock
subject to options under the Plan which results from the inability of the
Company to obtain, or from any delay in obtaining, from any regulatory body
having jurisdiction, all requisite authority to issue or transfer shares of
stock of the Company, if counsel for the Company deems such authority necessary
for the lawful issuance or transfer of any such shares. Appropriate legends may
be placed on the stock certificates evidencing shares issued upon exercise of
options to reflect such transfer restrictions.
Each option granted under the Plan is subject to the requirement that if at
any time the Compensation Committee determines, in its discretion, that the
listing, registration or qualification of shares of stock issuable upon exercise
of options is required by any securities exchange or under
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<PAGE>
any state or Federal law, or that the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in connection
with, the grant of options or the issuance of shares of stock, no options or
shares of stock shall be issued, in whole or in part, unless such listing,
registration, qualification, consent or approval has been effected or obtained
free of any conditions or with such conditions as are acceptable to the
Compensation Committee.
16. CANCELLATION OF OPTIONS
The Compensation Committee, in its discretion, may, with the consent of an
Optionee, cancel any outstanding option held by such Optionee hereunder.
17. AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan or amend the Plan at any
time, and from time to time, subject to any required regulatory approval and the
limitation that, except as provided in Sections 7 and 8 thereof, no amendment
shall be effective unless approved by the stockholders of the Company in
accordance with applicable law and regulations at an annual or special meeting
held within twelve months before or after the date of adoption of such
amendment, where such amendment will:
(a) increase the number of shares of Common Stock as to which options
may be granted under the Plan;
(b) change in substance Section 4 hereof relating to eligibility to
participate in the Plan;
(c) change the minimum option exercise price; or
(d) otherwise materially increase the benefits accruing to individuals
under the Plan.
In addition to the foregoing, other Plan amendments shall be subject to
approval by the Company stockholders if and to the extent determined by the
Compensation Committee to be required by the Act to ensure that options or
grants granted under the Plan are exempt under Rule 16b-3 promulgated under the
Act, or that Incentive Stock Options granted under the Plan are qualified under
Section 422 of the Code.
Except as provided in Sections 7 and 8 hereof, rights and obligations under
any option granted before any amendment of the Plan shall not be altered or
impaired by such amendment, except with the consent of the Optionee.
8
<PAGE>
18. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including
without limitation, the granting of stock or stock options otherwise than under
the Plan, and such arrangements may be either applicable generally or only in
specific cases.
19. GOVERNING LAW
The Plan shall be governed by Delaware law, except to the extent that such
law is preempted by federal law.
20. EFFECTIVE DATE AND EXPIRATION DATE OF PLAN; STOCKHOLDER APPROVAL
This Plan shall become effective upon the date that it is approved by the
Board of Directors of the Company; provided, however, that the Plan shall be
subject to the approval of the Company's stockholders in accordance with
applicable laws and regulations at an annual or special meeting held within
twelve months of such effective date. No options granted under the Plan prior to
such stockholder approval may be exercised until such approval has been
obtained. No options may be granted under the Plan after the tenth anniversary
of the effective date of the Plan.
21. MISCELLANEOUS
(a) If the Compensation Committee shall find that any person to whom any
amount is payable under the Plan is unable to care for his affairs because of
illness or accident, or is a minor, or has died, then any payment due to such
person or his estate (unless a prior claim therefor has been made by a duly
appointed legal representative) may, if the Compensation Committee so directs
the Company, be paid to his spouse, child, or other relative, an institution
maintaining or having custody of such person, or any other person deemed by the
Compensation Committee to be a proper recipient on behalf of such person
otherwise entitled to payment. Any such payment shall be a complete discharge of
the liability of the Compensation Committee and the Company therefor.
(b) No member of the Compensation Committee shall be personally liable by
reason of any contract or other instrument executed by such member or on his
behalf in his capacity as a member of the Compensation Committee nor for any
mistake of judgment made in good faith, and the Company shall indemnify and hold
harmless each member of the Compensation Committee and each other employee,
officer or director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated,
against any cost or
9
<PAGE>
expense (including counsel fees) or liability (including any sum paid in
settlement of a claim) arising out of any act or omission to act in connection
with the Plan unless arising out of such person's own fraud or bad faith;
provided, however, that approval of the Company's Board of Directors shall be
required for the payment of any amount in settlement of a claim against any such
person. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or By-Laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
(c) No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made or otherwise
to segregate any assets, nor shall the Company maintain separate bank accounts,
books, records or other evidence of the existence of a segregated or separately
maintained or administered fund for such purposes. Optionees shall have no
rights under the Plan other than as unsecured general creditors of the Company,
except that insofar as they may have become entitled to payment of additional
compensation by performance of services, they shall have the same rights as
other employees under general law.
(d) Each member of the Compensation Committee and each member of the
Company's Board of Directors shall be fully justified in relying, in acting or
failing to act, and shall not be liable for having so relied, acted or failed to
act in good faith, upon any report made by the independent public accountant of
the Company and upon any other information furnished in connection with the Plan
by any person or persons other than such member.
(e) Except as otherwise specifically provided in the relevant plan
document, no payment under the Plan shall be taken into account in determining
any benefits under any pension, retirement, profit-sharing, group insurance or
other benefit plan of the Company.
(f) The expenses of administering the Plan shall be borne by the Company.
* * *
<PAGE>
This Agreement, entered into this ___ day of March, 1998, by and between
Allen Field Co., Inc., a New York corporation with its principal place of
business at 144 Allen Boulevard, Farmingdale, New York 11735 ("Allen Field"),
and Electronic Hardware Corp., a New York corporation with its principal place
of business at 320 Broad Hollow Road, Farmingdale, New York 11735 ("EHC").
WHEREAS, Allen Field desires to contract for the engineering consulting,
manufacturing and importing services of EHC, and EHC desires to perform such
services on behalf of Allen Field; and
WHEREAS, it is the desire of EHC to secure a right of first refusal to
commercially exploit certain manufactured items; and
WHEREAS, Allen Field may from time to time become aware of business
opportunities with such manufactured items.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually agreed by and among
the Parties as follows:
1. Term. The term of this Agreement shall commence as of the date first written
above and end on March 31, 2003 (said period is hereinafter referred to as the
"Term").
2. Services. EHC agrees to perform for Allen Field, on an exclusive basis, the
following services:
(a) Provision of general engineering consulting services to Allen Field in
connection with, and in furtherance of, the development and expansion of Allen
Field's products and business; and
(b) Manufacture and/or import of certain Allen Field products on a time and
materials basis. The decision to fulfill the manufacturing and importing
requests of Allen Field shall be made solely by EHC in its exercise of
reasonable discretion.
3. Limitation of EHC's Product Development.
Notwithstanding any provision to the contrary contained herein, EHC shall
not develop or manufacture products in the Product Line (as defined in Section
5), except upon the written approval of Allen Field.
<PAGE>
4. Rights Granted to EHC.
(a) Subject to the terms of this Agreement, in the event Allen Field, or
any of its officers, directors, employees or agents, becomes aware of an
opportunity to manufacture, sell or market items not currently produced or sold
by it (the "Opportunity"), Allen Field shall first advise EHC of such
Opportunity in writing, stating the nature of such Opportunity.
(b) EHC shall have the first right to commercially exploit such Opportunity
(the "Right"), and shall provide written notice to Allen Field of its exercise
of the Right within thirty (30) days from the date of receipt of notice of such
Opportunity. In the event EHC fails to exercise the Right or fails to give Allen
Field timely notice, then Allen Field may utilize the Opportunity in any manner
it chooses.
5. Limitation of the Right.
The Right granted hereunder shall not include opportunities for
manufactured items that are within Allen Field's present product line of (1)
point of sale display items, (2) plastic hardware for the kitchen, bath and
furniture industries, and (3) endcaps for cylinders and mailing tubes (the
"Product Line").
6. Remedies.
If Allen Field breaches, or threatens to commit a breach of any of the
provisions contained herein, EHC shall have the following rights and remedies
(upon compliance with any necessary prerequisites imposed by law for the
availability of such remedies), each of the rights and remedies being
independent of the other and severally enforceable, and all of the rights and
remedies being in addition to, and not in lieu of, any other rights and remedies
available to EHC under law or in equity:
(a) The right and remedy to have the Agreement specifically enforced by any
court having equity jurisdiction, including, without limitation, the right to
have restraining orders and injunctions (preliminary, mandatory, temporary and
permanent) entered against Allen Field preventing violations of such covenants,
threatened or actual, and whether or not then continuing, it being acknowledged
and agreed that any such breach will cause irreparable injury to EHC and that
money damages will not provide an adequate remedy to EHC;
(b) The right and remedy to require Allen Field to account for and pay over
to the EHC all compensation, profits, monies, accruals, increments or other
benefits derived or received by it primarily as the result of any transactions
constituting a breach of the Agreement. Allen Field shall promptly account for
and pay over such sums to EHC.
2
<PAGE>
7. Arbitration.
Any controversy or claim arising out of, or relating to this Agreement, or
its breach, shall be settled by arbitration in accordance with the then
governing rules of the American Arbitration Association in the City of New York.
Judgement upon the award rendered may be entered and enforced in any court of
competent jurisdiction.
8. Termination of the Agreement.
The parties may terminate this Agreement and the terms contained herein
only by a written instrument signed by both parties or upon expiration of the
Term.
9. Waivers and Amendments.
This Agreement and any of the terms contained herein may not be amended,
superseded, canceled, renewed, extended or waived, unless by a written
instrument signed by the parties or, in the case of a waiver, by the party
waiving compliance. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, preclude
any other or further exercise thereof or the exercise of any other such right,
power or privilege. The failure of either party to insist upon performance of
any terms or conditions of the Agreement shall not be construed a waiver of
future performance of any such term, covenant or condition, and the obligations
of either party with respect thereto shall continue in full force and effect.
10. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
11. Assignment.
This Agreement, and Allen Field's rights and obligations hereunder, may not
be assigned by Allen Field. Any purported assignment by Allen Field in violation
hereof shall be null and void. EHC may assign this Agreement and its rights
hereunder.
3
<PAGE>
11. Counterparts.
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first above written.
Allen Field Co., Inc.
By: /s/ Harry Goodman
---------------------------------
Harry Goodman, Vice President
Electronic Hardware Corp.
By: /s/ Andrew Franzone
---------------------------------
Andrew Franzone, President
4
<PAGE>
List of Subsidiaries of International Plastic Technologies, Inc.
Compact Disc Packaging Corp.
Incorporated in Delaware on January 31, 1995
Duralogic Technologies, Inc.
Incorporated in New York on November 7, 1997
Electronic Hardware Corp.
Incorporated in New York on January 28, 1970
<PAGE>
EXH 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 6, 1998 of International Plastic Technologies,
Inc. and subsidiary, Electronic Hardware Corp., and of our report dated March
18, 1998 of Compact Disc Packaging Corp. in the Registration Statement on Form
SB-2 and the related Prospectus of International Plastic Technologies, Inc.
/s/ Feldman Radin & Co., P.C.
---------------------------
FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF INTERNATIONAL PLASTIC TECHNOLOGIES, INC. AS OF
DECEMBER 27, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 351,740
<SECURITIES> 0
<RECEIVABLES> 695,471
<ALLOWANCES> 14,000
<INVENTORY> 1,043,011
<CURRENT-ASSETS> 2,172,248
<PP&E> 4,624,969
<DEPRECIATION> 4,001,754
<TOTAL-ASSETS> 2,907,820
<CURRENT-LIABILITIES> 1,447,192
<BONDS> 721,244
0
0
<COMMON> 1,945
<OTHER-SE> 448,899
<TOTAL-LIABILITY-AND-EQUITY> 2,907,820
<SALES> 6,054,747
<TOTAL-REVENUES> 6,054,747
<CGS> 3,831,599
<TOTAL-COSTS> 5,602,492
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206,900
<INCOME-PRETAX> 245,355
<INCOME-TAX> 98,000
<INCOME-CONTINUING> 147,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,355
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF COMPACT DISC PACKAGING CORP. AS OF
DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 445
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 445
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 445
<CURRENT-LIABILITIES> 132,910
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 24,995
<TOTAL-LIABILITY-AND-EQUITY> 445
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 89,730
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (89,730)
<INCOME-TAX> 0
<INCOME-CONTINUING> (89,730)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89,730)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
